Azarga Uranium Corp.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
(Expressed in U.S. Dollars)
Independent Auditor’s Report
To the Shareholders of Azarga Uranium Corp.
Opinion
We have audited the accompanying consolidated financial statements of Azarga Uranium Corp. (“the
Company”), which comprise the consolidated statements of financial position as at December 31, 2018
and 2017 and the related consolidated statements of loss and other comprehensive loss, changes in equity
and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the financial position of Azarga Uranium Corp. as at December 31, 2018 and 2017 and the
consolidated statements of loss and other comprehensive loss, changes in equity and cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory information in
accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
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 $18,973,266. These events or conditions, along with other matters as set
forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the
Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. The other information comprises:
The information, other than the consolidated financial statements and our auditor’s report thereon,
included in Management’s Discussion & Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on
the work we have performed on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact in this auditor’s report. We
have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Bryndon Kydd.
(signed) “BDO CANADA LLP”
Chartered Professional Accountants
Vancouver, British Columbia
March 29, 2019
TABLE OF CONTENTSCONSOLIDATED FINANCIAL STATEMENTSPageConsolidated Statements of Financial Position67Consolidated Statements of Changes in Equity8Consolidated Statements of Cash Flows9NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1.Corporate information and going concern102.Basis of preparation113.Summary of significant accounting policies144.Segmented information275.Investments held for sale286.Acquisition of URZ Energy287.Exploration and evaluation assets308.Loans payable 349.Decommissioning liabilities3610.Warrant liabilities3611.Equity3712.Share option reserve4213.Administrative expenses4414.Finance costs4515.Unrealized gain4516.Realized gain (loss)4517.Related party transactions and balances4618.Financial instruments and risk management4819.Capital risk management5220.Commitments5221.Supplemental cash flow information5322.Non-controlling interest5423.Deferred income tax5624.Subsequent events58Consolidated Statements of Loss and Other Comprehensive Loss
AZARGA URANIUM CORP.
Consolidated Statements of Financial Position
(Expressed in U.S. Dollars)
Approved by the Board of Directors of the Company:
“Joseph L. Havlin”, Director
“Glenn Catchpole”, Director
The accompanying notes are an integral part of these consolidated financial statements.
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Notes20182017ASSETSCurrent assetsCash352,001$ 432,192$ Other assets26,810 123,160 Total current assets378,811 555,352 Non-current assetsRestricted cash39,963 39,176 Exploration and evaluation assets746,696,473 33,003,670 Property, plant and equipment90,106 97,322 Reclamation bonds999,000 - Total non-current assets46,925,542 33,140,168 Total assets47,304,353$ 33,695,520$ LIABILITIES AND EQUITYCurrent liabilitiesTrade and other payables 1,302,085$ 1,525,906$ Loans payable8- 328,678 Total current liabilities1,302,085 1,854,584 Non-current liabilitiesTrade and other payables 17150,000 - Loans payable8- 1,776,000 Deferred income tax liabilities234,233,790 4,052,790 Decommissioning liabilities9223,442 142,918 Warrant liabilities10247,654 258,116 Total non-current liabilities4,854,886 6,229,824 Total liabilities6,156,971 8,084,408 EquityCommon shares1157,976,321 41,286,853 Contributed surplus111,001,818 768,652 Share option reserve122,500,078 1,427,563 Foreign currency translation reserve(863,092) (827,984) Accumulated deficit(18,973,266) (16,593,976) Equity attributable to the equity holders of the Company41,641,859 26,061,108 Non-controlling interest22(494,477) (449,996) Total equity41,147,382 25,611,112 Total liabilities and equity47,304,353$ 33,695,520$ As at December 31,
AZARGA URANIUM CORP.
Consolidated Statements of Loss and Other Comprehensive Loss
(Expressed in U.S. Dollars)
The accompanying notes are an integral part of these consolidated financial statements.
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Notes20182017Administrative expenses13(2,145,295)$ (1,659,228)$ Foreign exchange gain (loss)(13,791) 114,110 Impairment of exploration and evaluation assets7- (6,346,899) Loss from operations(2,159,086) (7,892,017) Finance costs14(154,913) (216,478) Unrealized gain1551,789 595,801 Realized gain (loss)1634,485 (3,938) Loss before income tax(2,227,725) (7,516,632) Deferred income tax (expense) recovery23(181,000) 2,236,000 Net loss(2,408,725) (5,280,632) Other comprehensive income (loss)Item that may be reclassified subsequently as profit or lossForeign currency translation adjustment (50,154) 19,197 Total other comprehensive loss(2,458,879)$ (5,261,435)$ Net loss attributable to:Equity holders of the Company(2,379,290) (3,578,681) Non-controlling interest22(29,435) (1,701,951) Net loss(2,408,725)$ (5,280,632)$ Other comprehensive income (loss) attributable to:Equity holders of the Company(35,108) 14,022 Non-controlling interest22(15,046) 5,175 Other comprehensive income (loss):(50,154)$ 19,197$ Basic and diluted loss per share(0.02)$ (0.07)$ Weighted average number of common shares outstanding125,183,747 77,506,606 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.
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Foreign currencyNumber ofCommonContributedtranslationAccumulatedNon-controllingsharessharessurplusreservedeficitTotal equityinterestTotal equityBalances, 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$ Acquisition of URZ Energy58,107,109 11,273,920 686,314 769,169 - - 12,729,403 - 12,729,403 Issuance of shares to settle Shareholders' Loan11,269,243 2,201,024 - - - - 2,201,024 - 2,201,024 Issuance of shares for private placements780,000 140,804 - - - - 140,804 - 140,804 Issuance of shares on exercise of warrants11,950,866 2,347,295 (520,217) - - - 1,827,078 - 1,827,078 Issuance of shares for repurchase of royalties104,166 19,391 - - - - 19,391 - 19,391 Issuance of shares to settle trade and other payables2,033,334 391,014 - - - - 391,014 - 391,014 Issuance of shares to settle ESPP1,115,301 215,344 (215,344) - - - - - - Issuance of shares to settle DSA303,937 58,669 (58,669) - - - - - - Issuance of shares to settle employee remuneration550,000 93,500 (93,500) - - - - - - Issuance of warrants- (51,493) - - - - (51,493) - (51,493) Compensation to be settled by equity- - 434,582 - - - 434,582 - 434,582 Share-based compensation- - - 303,346 - - 303,346 - 303,346 Net loss for the year- - - - - (2,379,290) (2,379,290) (29,435) (2,408,725) Other comprehensive loss for the year- - - - (35,108) - (35,108) (15,046) (50,154) Balances, December 31, 2018169,833,806 57,976,321$ 1,001,818$ 2,500,078$ (863,092)$ (18,973,266)$ 41,641,859$ (494,477)$ 41,147,382$ Foreign currencyNumber ofCommonContributedtranslationAccumulatedNon-controllingsharessharessurplusreservedeficitTotal equityinterestTotal equity 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$ 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 Compensation to be settled by equity- - 394,205 - - - 394,205 - 394,205 Share-based compensation- - - 230,698 - - 230,698 - 230,698 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$ 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)
Supplemental cash flow information, see Note 21
The accompanying notes are an integral part of these consolidated financial statements.
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Notes20182017OPERATING ACTIVITIESNet loss(2,408,725)$ (5,280,632)$ Adjustments for:Depreciation3,919 2,123 Share-based compensation12266,044 198,706 Deferred income tax expense (recovery)23181,000 (2,236,000) Equity compensation expense11434,582 394,205 Finance costs14154,913 216,478 Unrealized gain15(51,789) (595,801) Realized (gain) loss16(34,485) 3,938 Impairment of exploration and evaluation assets7- 6,346,899 Unrealized foreign exchange gain(59,819) (33,500) Operating cash flows before changes in non-cash working capital items(1,514,360) (983,584) Change in other assets145,542 (92,479) Change in trade and other payables(465,357) 257,894 Net cash used in operating activities(1,834,175) (818,169) INVESTING ACTIVITIESSale of investments5- 71,106 Cash received on acquisition of URZ Energy, net of transaction costs6423,924 - Expenditures on exploration and evaluation assets7(1,420,294) (1,163,207) Recoveries of expenditures on exploration and evaluation assets768,697 - Option payments received for exploration and evaluation assets7290,000 150,000 Reclamation bonds(2,000) - Purchase of property, plant and equipment- (1,350) Net cash used in investing activities(639,673) (943,451) FINANCING ACTIVITIESProceeds from issuance of common shares 111,984,444 1,353,937 Share issue costs11- (55,006) Loan proceeds received 8515,000 - Payment of other loans payable8(105,000) (50,000) Net cash generated by financing activities2,394,444 1,248,931 Effect of foreign exchange rate changes on cash(787) 3,511 Decrease in cash(80,191) (509,178) Cash, beginning of year432,192 941,370 Cash, end of year352,001$ 432,192$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
1.
CORPORATE INFORMATION AND GOING CONCERN
Azarga Uranium Corp. (“Azarga Uranium”) was incorporated on February 10, 1984 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), the Frankfurt Stock
Exchange (Symbol: P8AA), and the OTCQB Venture Market (Symbol: AZZUF). 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 uranium projects in
Wyoming, Colorado, Utah and 70% of a 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.
In July 2018, the Company completed the acquisition of URZ Energy Corp. (“URZ Energy”)
pursuant to a court approved plan of arrangement, see Note 6.
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, 2018, the Company
had a working capital deficit of $923,274 and an accumulated deficit of $18,973,266 and will
continue incurring losses in the foreseeable future. In March 2019, the Company completed
a non-brokered private placement for gross proceeds of C$3,014,391, see Note 24. However,
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.
These consolidated financial statements do not reflect adjustments that would be necessary
if the going concern assumption were not appropriate.
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AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
2.
BASIS OF PRESENTATION
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, 2018 were
approved and authorized for issue by the Company’s Board of Directors on March 28, 2019.
2.2
Basis of presentation
These consolidated financial statements have been prepared on a historical cost basis, except
for financial instruments which are measured at fair value. The Company’s financial
instruments are further disclosed in Note 18.
2.3
Presentation currency
These consolidated financial statements are presented in United States Dollars, unless
otherwise indicated. All references to $ refer to the United States Dollar and all references to
C$ refer to the Canadian Dollar.
2.4
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, see Note 1.
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AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
2.
BASIS OF PRESENTATION (Continued)
2.4
Significant accounting judgments and estimates (Continued)
Indicators of impairment of exploration and evaluation assets
In accordance with the Company’s accounting policy for its exploration and evaluation assets,
expenditures on its uranium properties are capitalized. There is no certainty that the
expenditures made by the Company in the exploration of its property interests will result in
discoveries of commercial quantities of uranium. The Company applies judgment to
determine whether indicators of impairment exist for these capitalized costs.
Management uses several criteria in making this assessment, including the period for which
the Company has the right to explore, expected renewals of exploration rights, whether
substantive expenditures on further exploration and evaluation of its properties are
budgeted, and evaluation of the results of exploration and evaluation activities up to the
reporting date.
Carrying value of exploration and evaluation assets
If any indicators of impairment are noted then management reviews the carrying value of the
Company’s exploration and evaluation assets to determine whether an impairment charge
should be recorded on any of its projects. Management determines the recoverable amount
of its individual exploration and evaluation assets using the higher of fair value less costs to
sell or value-in-use. This determination and the individual assumptions require that
management decide whether impairment should be recorded based on the best available
information at each reporting period. Changes in these assumptions may alter the results of
impairment testing, impairment charges recognized in profit or loss and the resulting
carrying amounts of assets.
During the year ended December 31, 2018, impairment indicators were noted on the
Company’s Centennial project; however, the Company did not record an impairment charge
as the fair value was determined to be in excess of its carrying value, see Note 7.
During the year ended December 31, 2017, the Company recorded an impairment charge of
$6,346,899 on its Kyzul Ompul project in Kyrgyzstan, see Note 7.
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AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
2.
BASIS OF PRESENTATION (Continued)
2.4
Significant accounting judgments and estimates (Continued)
Capitalization of exploration and evaluation costs
Management has determined that exploration and evaluation costs incurred or acquired
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, scoping studies, preliminary
economic assessments, proximity of operating facilities, operating management expertise
and existing permits.
Determining if an acquisition is a business combination or an asset acquisition
As required by IFRS 3 Business Combinations (“IFRS 3”), the Company is required to
determine whether the acquisition of URZ Energy should be accounted for as a business
combination or an asset acquisition, see Note 6. Under IFRS 3, the components of a business
must include inputs, processes and outputs. Management has determined that URZ Energy
did not include all the necessary components of a business. Accordingly, the acquisition of
URZ Energy has been recorded as an acquisition of URZ’s net assets, consisting of URZ
Energy’s exploration and evaluation assets and working capital.
Identifying the acquirer in an acquisition
As required by IFRS 3 and IFRS 10 Consolidated Financial Statements, the Company is
required to determine whether it is the acquirer or acquiree in the URZ Energy acquisition.
The acquirer is the entity that obtains control of the acquiree in the acquisition. If it is not
clear which company is the acquirer, additional information must be considered, such as the
combined entity’s relative voting rights, existence of a large minority voting interest,
composition of the governing body and senior management, and the terms behind the
exchange of equity interests. Management has determined that Azarga Uranium is the
acquirer of URZ Energy.
Determination of asset and liability fair values
Business combinations and asset acquisitions require judgment and estimates to be made at
the date of acquisition in relation to determining asset and liability fair values. The
information necessary to measure the fair values as at the acquisition date of assets acquired
and liabilities assumed requires management make certain judgments and estimates about
future events, including but not limited to estimates of mineral resources acquired,
exploration potential, future operating costs and capital expenditures, future metal prices,
and long-term foreign exchange rates.
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AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
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
Place of
incorporation
Ownership
interest
at December
31, 2018
100%
100%
70%
100%
100%
100%
Principal activity
Operating uranium
exploration company
Operating uranium
exploration company
Operating uranium
exploration company
Holding company
Holding company
Holding company
USA
USA
Kyrgyz
Republic
Canada
BVI
Hong Kong
Canada
100%
Holding company
USA
100%
Holding company
Powertech (USA) Inc.
Ucolo Exploration Corp. *
UrAsia in Kyrgyzstan LLC
URZ Energy Corp. *
Azarga Resources Limited
Azarga Resources (Hong
Kong) Limited
Azarga Resources Canada
Ltd.
Azarga Resources USA
Company
* acquired in July 2018, see Note 6
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 on consolidation.
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AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.2
Foreign currency translation
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.
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.
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.
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AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.3
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.
3.4
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
• Office equipment
• Furniture and fixtures
• Building
5 to 10 years
3 years
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.
Page | 16
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.4
Property, plant and equipment (Continued)
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.
3.5
Exploration and evaluation assets
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 exploration and
evaluation 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 are recognized in profit or loss.
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” in the
consolidated statement of financial position. As part of the reclassification, “mines under
construction” will be tested for impairment.
Page | 17
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.6
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.
3.7
Taxation
Income tax expense represents the sum of current and deferred income tax.
Current income tax
Current income tax assets and liabilities 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, 2018 and 2017.
Deferred income tax
Deferred income tax is provided for using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
Page | 18
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.7
Taxation (Continued)
Deferred income tax (Continued)
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
• 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 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 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.
Page | 19
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.7
Taxation (Continued)
Deferred income tax (Continued)
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.
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.
3.8
Financial Instruments
The Company adopted all of the requirements of IFRS 9 Financial Instruments (“IFRS 9”) as
of January 1, 2018. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and
Measurement (“IAS 39”). IFRS 9 utilizes a revised model for recognition and measurement of
financial instruments and a single, forward-looking “expected loss” impairment model.
Classification
The Company classifies its financial instruments in the following categories: at fair value
through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss)
(“FVTOCI”) or at amortized cost. The Company determines the classification of financial
assets at initial recognition. The classification of debt instruments is driven by the Company’s
business model for managing the financial assets and their contractual cash flow
characteristics. Equity instruments that are held for trading are classified as FVTPL. For other
equity instruments, on the day of acquisition the Company can make an irrevocable election
(on an instrument-by-instrument basis) to designate them as FVTOCI. Financial liabilities are
measured at amortized cost, unless they are required to be measured at FVTPL (such as
instruments held for trading or derivatives) or the Company has opted to measure them at
FVTPL.
Page | 20
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.8
Financial Instruments (Continued)
Classification (Continued)
The Company completed a detailed assessment of its financial assets and liabilities as at
January 1, 2018. The following table shows the original classification under IAS 39 and the
new classification under IFRS 9:
Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or
minus transaction costs, respectively, and subsequently carried at amortized cost less any
impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and
transaction costs are expensed in the consolidated statements of profit or loss. Realized and
unrealized gains and losses arising from changes in the fair value of the financial assets and
liabilities held at FVTPL are included in the consolidated statements of profit or loss in the
period in which they arise. Where management has opted to recognize a financial liability at
FVTPL, any changes associated with the Company’s own credit risk will be recognized in
other comprehensive income or loss.
Financial assets at FVTOCI
Financial assets, such as investments in equity instruments, classified at FVTOCI are initially
recognized at fair value plus transaction costs. Subsequently they are measured at fair value,
with gains and losses recognized in other comprehensive income or loss.
Page | 21
IAS 39IFRS 9Financial assetsCashLoans and receivablesAmortized costRestricted cashLoans and receivablesAmortized costReclamation bondsLoans and receivablesAmortized costFinancial liabilitiesTrade and other payablesOther financial liabilitiesAmortized costLoans payableOther financial liabilitiesAmortized costDecommissioning liabilitiesOther financial liabilitiesAmortized costWarrant liabilitiesFVTPLFVTPL
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.9
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
• 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.
Page | 22
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.10
Impairment of financial assets
Assets carried at amortized cost
At the end of each reporting period, the Company assesses whether a financial asset is
impaired.
If there is objective evidence that an impairment loss 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 and
the amount of the loss is recognized in profit or loss.
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.
3.11
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 and 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.
Page | 23
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.12 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.
3.13 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.
3.14
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.
3.15
Share-based compensation
Where equity-settled share options are granted to employees, inclusive of directors of the
Company, the fair value of the options granted is measured using the Black-Scholes option
pricing model and is charged to the statement of profit or loss or capitalized to exploration
and evaluation assets over the vesting period. An individual is classified as an employee when
the individual is an employee for legal or tax purposes (a “direct employee”) or provides
services similar to those performed by a direct employee. Certain employees of the Company
receive a portion of their remuneration in the form of share-based payments.
Where equity-settled share options are granted to non-employees, they are measured at the
fair value of the goods or services received. However, if the value of goods or services received
in exchange for the options cannot be reliably estimated, the options are measured using the
Black-Scholes option pricing model.
Page | 24
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.15
Share-based compensation (Continued)
All equity-settled share-based compensation is reflected in share option reserve, until
exercised. Upon exercise, shares are issued from treasury and the amount reflected in share
option reserve is credited to common shares, together with any consideration received.
3.16 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.
3.17 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.
3.18
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.
Page | 25
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.19
Standards issued but not yet effective
A number of new standards, amendments to standards and interpretations are not yet
effective as of December 31, 2018 and have not been applied in preparing these consolidated
financial statements. Only those standards which are applicable to the Company are
discussed below.
IFRS 16 – Leases (“IFRS 16”) (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 immaterial or
are leases to explore for uranium resources, which are exempt from IFRS 16.
Page | 26
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
4.
SEGMENTED INFORMATION
The Company has two reportable business segments being the United States Uranium
Division and the Kyrgyzstan Uranium Division. The Company’s chief operating decision
maker reviews both business segments’ discrete financial information to make decisions
about resources to be allocated to each segment and to assess their 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:
Page | 27
Kyrgyzstan Uranium DivisionUnited States Uranium DivisionUnallocated (i)Consolidated TotalSegment assetsAs at December 31, 20184,389,464$ 42,730,212$ 184,677$ 47,304,353$ As at December 31, 20174,141,856$ 29,288,567$ 265,097$ 33,695,520$ Segment liabilitiesAs at December 31, 20181,633,878$ 3,589,458$ 933,635$ 6,156,971$ As at December 31, 20171,036,156$ 3,677,443$ 3,370,809$ 8,084,408$ Exploration and evaluation assets (Note 7)As at December 31, 20184,225,090$ 42,471,383$ -$ 46,696,473$ As at December 31, 20174,069,145$ 28,934,525$ -$ 33,003,670$ Loss before income taxYear ended December 31, 2018(117,560)$ (443,236)$ (1,666,929)$ (2,227,725)$ Year ended December 31, 2017(6,416,438)$ (271,561)$ (828,633)$ (7,516,632)$ Impairment of exploration and evaluation assets (Note 7)Year ended December 31, 2018-$ -$ -$ -$ Year ended December 31, 2017(6,346,899)$ -$ -$ (6,346,899)$ (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, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
5.
INVESTMENTS HELD FOR SALE
During the year ended December 31, 2017, the Company sold its remaining investment in a
uranium company 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 investment of
$25,412.
6.
ACQUISITION OF URZ ENERGY
On July 5, 2018, the Company completed the acquisition of URZ Energy through the issue of
57,920,716 common shares of the Company valued at $11,237,756. Each URZ Energy
shareholder received two Azarga Uranium shares for each URZ Energy share held (the
“Exchange Ratio”).
All outstanding share purchase warrants and stock options of URZ Energy were adjusted in
accordance with their terms and the Exchange Ratio such that Azarga Uranium reserved for
issue:
• 14,806,700 share purchase warrants with an exercise price of C$0.20 expiring August 15,
2018. The share purchase warrants were valued at $644,530 using the Black-Scholes
option pricing model with the following assumptions: a risk-free interest rate of 1.90%;
an expected volatility of 55.1%; an expected life of 0.11 years; a forfeiture rate of zero; an
expected dividend of zero; and an exchange rate of 1.3143;
• 2,304,184 share purchase warrants with an exercise price of C$0.375 expiring June 19,
2019. The share purchase warrants were valued at $41,784 using the Black-Scholes
option pricing model with the following assumptions: a risk-free interest rate of 1.90%;
an expected volatility of 55.1%; an expected life of 0.96 years; a forfeiture rate of zero; an
expected dividend of zero; and an exchange rate of 1.3143; and
• 4,480,000 stock options with an exercise price of C$0.075 expiring March 14, 2027. The
stock options were valued at $769,169 using the Black-Scholes option pricing model with
the following assumptions: a risk-free interest rate of 2.12%; an expected volatility of
76.5%; an expected life of 8.7 years; a forfeiture rate of zero; an expected dividend of zero;
and an exchange rate of 1.3143.
Page | 28
20182017Balance, beginning of year-$ 68,264$ Disposition of shares- (93,676) Unrealized gain on revaluation of investment- 25,412 Balance, end of year-$ -$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
6.
ACQUISITION OF URZ ENERGY (Continued)
The Company paid transaction costs of $146,601 in cash and issued 186,393 common shares
of the Company valued at $36,164.
URZ Energy, a British Columbia Corporation, owns all the issued and outstanding shares of
Ucolo Exploration Corp. (“Ucolo”), a Utah Corporation. As discussed further in Note 7, at
acquisition, Ucolo held certain uranium projects located in Wyoming, Colorado and Utah.
* In May 2018, URZ Energy advanced $465,000 to the Company, see Note 8.2. The loan
accrued interest at 5% through completion of the acquisition. All principal and interest was
settled on completion of the acquisition.
Page | 29
ConsiderationShares issued11,237,756$ Warrants issued686,314 Options issued769,169 Transaction costs - shares36,164 Transaction costs - cash146,601 Due from Azarga Uranium *(468,567) Total12,407,437$ Net assets receivedCash570,525$ Other assets49,192 Exploration and evaluation assets12,167,005 Property, plant and equipment2,894 Reclamation bonds97,000 Trade and other payables(417,035) Decommissioning liabilities(62,144) Total12,407,437$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
7.
EXPLORATION AND EVALUATION ASSETS
Page | 30
South DakotaUtahKyrgyzstanDewey BurdockGas HillsJuniper RidgeOtherCentennialJBTicabooKyzyl OmpulTotalBalance, December 31, 201725,909,535$ -$ -$ 692,775$ 2,332,215$ -$ -$ 4,069,145$ 33,003,670$ Acquisition of URZ Energy- 8,512,595 2,724,761 63,645 - 415,467 450,537 - 12,167,005 Acquisition costs31,250 - - - - - - - 31,250 Salaries and consulting 652,800 21,097 1,580 25,427 28,000 1,400 3,500 46,409 780,213 License fees276,072 97,525 20,509 127,653 2,530 10,307 5,317 468,918 1,008,831 Decommissioning liabilities- 1,806 - - 14,281 - 2,293 - 18,380 Share-based compensation18,981 1,355 542 1,628 2,712 542 1,355 10,187 37,302 Depreciation- - - - - - - 5,930 5,930 Repurchase of royalties19,391 - - - - - - - 19,391 Option payments received- - - - - - - (290,000) (290,000) Recoveries- - - - - - - (68,697) (68,697) Currency translation effect- - - - - - - (16,802) (16,802) Balance, December 31, 201826,908,029$ 8,634,378$ 2,747,392$ 911,128$ 2,379,738$ 427,716$ 463,002$ 4,225,090$ 46,696,473$ South DakotaUtahKyrgyzstanDewey BurdockGas HillsJuniper RidgeOtherCentennialJBTicabooKyzyl OmpulTotalBalance, December 31, 201625,073,304$ -$ -$ 558,746$ 2,288,492$ -$ -$ 10,363,942$ 38,284,484$ Salaries and consulting 558,701 - - 21,000 21,172 - - 56,153 657,026 License fees263,038 - - 110,187 6,724 - - 50,735 430,684 Decommissioning liabilities- - - - 12,985 - - - 12,985 Share-based compensation14,492 - - 2,842 2,842 - - 11,816 31,992 Rehabilitation costs- - - - - - - 2,269 2,269 Depreciation- - - - - - - 7,901 7,901 Impairment- - - - - - - (6,346,899) (6,346,899) Option payments received- - - - - - - (150,000) (150,000) Currency translation effect- - - - - - - 73,228 73,228 Balance, December 31, 201725,909,535$ -$ -$ 692,775$ 2,332,215$ -$ -$ 4,069,145$ 33,003,670$ WyomingColoradoWyomingColorado
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
7.
EXPLORATION AND EVALUATION ASSETS (Continued)
7.1
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.
In 2006, the Company entered into an option agreement to purchase mineral rights on certain
areas of the Dewey Burdock Project for consideration of $200,000 plus contingent payments
of $750,000 payable in four equal instalments of $187,500 commencing 12 months
subsequent to the receipt of all regulatory permits and licenses allowing uranium production
on the area of the Dewey Burdock Project pertaining to these mineral interests. The Company
has disclosed these contingent amounts as a commitment in Note 20.
In 2008, the Company entered into an option agreement to purchase mineral rights on certain
areas of the Dewey Burdock Project for consideration of $600,000 plus contingent payments
of $1,300,000. On October 31, 2018, the Company entered into an amending agreement
whereby the $1,300,000 contingent payments are payable as follows: $31,250 on signing the
amending agreement; nine payments of $31,250 payable each May 31 and October 1; and ten
payments of $98,750 payable thereafter each May 31 and October 1 with the final payment
of $98,750 being made on May 31, 2028. If the Company receives all regulatory permits and
licenses allowing uranium production on the area of the Dewey Burdock Project pertaining
to these mineral interests before completion of the aforementioned payments, then the
balance of payments owing shall be payable in four equal installments annually beginning
one year from that date with a minimum payment of $98,750 a year until paid in full. The
Company has disclosed these contingent amounts as a commitment in Note 20.
On December 7, 2017, the Company entered into an agreement to repurchase royalties
related to uranium production on certain areas of the Dewey Burdock project for C$25,000
which was settled on March 23, 2018 by the issue of 104,166 common shares valued at
$19,391.
Page | 31
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
7.
EXPLORATION AND EVALUATION ASSETS (Continued)
7.2
Centennial Project, Colorado
The Centennial Uranium Project is located in the western part of Weld County in northeastern
Colorado.
In 2006, the Company entered into an option agreement, as amended, to purchase uranium
rights on certain areas of the Centennial Project for consideration of $1,895,000 plus
contingent payments of $3,165,000. The $3,165,000 contingent payment 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
contingent amount as a commitment in Note 20. Unless otherwise agreed to, if the Company
does not obtain such permits and licenses by September 27, 2019, the uranium rights will, at
the option of the seller, transfer back to the seller.
The Company does not expect to receive the regulatory permits and licenses allowing
uranium production on the areas of the Centennial Project pertaining to these uranium
interests by September 27, 2019. Further, the Company does not expect to be in a position
to make the $3,165,000 contingent payment as of that date. Accordingly, the Company will
use best efforts to renegotiate the Centennial Project option agreement before the contingent
payment is due.
As at December 31, 2018, the Company determined that the uncertainty over the option
agreement and the lack of planned or budgeted substantive expenditures planned for the
project were indicators of impairment and, accordingly, tested the Centennial Project for
impairment as at December 31, 2018. The Company used a fair value less cost to sell model
that evaluated comparable trading multiples of uranium companies and the Company
concluded that the Centennial Project is not impaired as at December 31, 2018. Comparable
trading multiples ranging from $0.33 to $1.79 were applied to determine the estimated
recoverable amount of the project. These trading multiples are subject to estimation
uncertainty and should these estimates prove inappropriate, impairment of the project may
result. The estimated recoverable amount assumes successful renegotiation of the option
agreement and deferral of the $3,165,000 payment, which if not successful, would result in
impairment of the Centennial Project.
7.3
URZ Energy uranium projects
In July 2018, the Company acquired URZ Energy and its Gas Hills, Juniper Ridge and Shirley
Basin uranium projects in Wyoming, the JB uranium project in Colorado and the Ticaboo
uranium project in Utah.
Page | 32
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
7.
EXPLORATION AND EVALUATION ASSETS (Continued)
7.4
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.
From July 31, 2017, to its termination on April 16, 2018, UrAsia was party to an earn-in
agreement (the “Earn-In Agreement”) with Mining Investment Company Alliance (“Alliance”).
The Earn-In Agreement provided Alliance with an earn-in option to acquire a 100% interest
in the Kyzyl Ompul Project in exchange for $6,000,000 of cash payments and a two percent
net smelter royalty of up to $5,000,000 as well as Alliance making $1,600,000 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.
On April 16, 2018, UrAsia executed a replacement earn-in agreement (the “Replacement
Agreement”) with Central Asian Uranium Company Limited Liability Company (“Central”) to
replace the Earn-in Agreement, which was terminated in accordance with the terms provided
for therein. The Replacement Agreement provides Central with an option to earn a 100%
interest in the Kyzyl Ompul Project in exchange for $5,850,000 in cash payments and a
commitment to fund $1,500,000 of exploration and development expenditures through
December 1, 2020.
Under the terms of the Replacement Agreement, Central made cash payments to the Company
of $290,000 during the year ended December 31, 2018. In March 2019, the Company and
Central amended the Replacement Agreement such that the remaining cash payments of
$5,560,000 are now payable as follows: $130,000 on signing, of which $70,000 has been
received and $60,000 is expected to be received imminently, $95,104 on April 30, 2019,
$16,828 per month from April 1 to September 1, 2019, $245,828 per month from October 1
to December 1, 2019, $378,911 from January 1 to September 1, 2020, and $362,082 per
month from October 1 to December 1, 2020. Cash payments received from Central over the
course of the Replacement Agreement are not refundable if Central does not exercise its
purchase option.
Aggregate exploration and development expenditures are expected to be incurred as follows:
$400,000 by December 31, 2018, $1,000,000 by December 31, 2019 and $1,500,000 by
December 1, 2020. For the year ended December 31, 2018, Central has exceeded the
minimum exploration and development expenditures required pursuant to the Replacement
Agreement.
Page | 33
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
7.
EXPLORATION AND EVALUATION ASSETS (Continued)
7.4
Kyzyl Ompul Project, Kyrgyz Republic (Continued)
Subject to Central completing all required funding and exercising its option to acquire a 100%
interest in the Kyzyl Ompul Project, UrAsia will retain a 2% net smelter return royalty that is
payable on commencement of commercial production and is subject to a minimum of
$2,500,000 and a maximum of $5,000,000.
If Central fails to make any of the payments under the Replacement Agreement, UrAsia will
retain its 100% interest in the Kyzyl Ompul Project.
During the year ended December 31, 2017, the Company recognized an impairment charge
of $6,346,899 for the Kyzyl Ompul Project on execution of the Earn-In Agreement. The
recoverable amount of the Kyzyl Ompul Project was based on a fair value less cost to sell
model, which incorporated the net present value of expected cash flows in accordance with
the Earn-In Agreement discounted at a rate of 22%. It was categorized as a non-recurring
level 3 fair value measurement. The discount rate was determined based on a market
participant’s cost of capital, adjusted for political and development risks.
8.
LOANS PAYABLE
8.1
Loan payable to shareholders
Page | 34
20182017Loan payable to shareholders-$ 2,057,805$ Other loans payable- 46,873 Loans payable-$ 2,104,678$ Current portion-$ 328,678$ Non-current portion-$ 1,776,000$ Year ended December 31,20182017Loan payable to shareholders - current-$ 281,805$ Loan payable to shareholders - non-current- 1,776,000 Loan payable to shareholders-$ 2,057,805$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
8.
LOANS PAYABLE (Continued)
8.1
Loan payable to shareholders (Continued)
On July 31, 2012, the Company entered into a convertible loan agreement with certain
shareholders of the Company for $1,776,000 (the “Shareholders’ Loan”). Pursuant to the
agreement, as amended, the Shareholders’ Loan accrued interest at 15% per annum payable
on each anniversary of the agreement, was unsecured, was convertible into shares of the
Company at the shareholders’ option at C$1.23, and matured July 31, 2020. The annual
interest that was due on July 31, 2017 was deferred until July 31, 2018. During the years
ended December 31, 2018 and 2017, the Company recorded interest expense of $143,219
and $209,670, respectively.
In July 2018, the Company issued 11,269,243 common shares of the Company valued at
$2,201,024 in full and final settlement of the Shareholders’ Loan, including principal of
$1,776,000 and accrued interest to the date of settlement of $425,024.
8.2 URZ Energy Loan
In May 2018, URZ Energy advanced $465,000 to the Company. The loan accrued interest at
5% through completion of the acquisition of URZ Energy. All principal and interest was
thereafter settled on completion of the acquisition. During the year ended December 31,
2018, the Company recorded interest expense of $3,567.
8.3 Other loans payable
Page | 35
20182017Balance, beginning of year46,873$ 90,065$ Loan received50,000 - Interest expense8,127 6,808 Loans repaid(105,000) (50,000) Balance, end of year-$ 46,873$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
9.
DECOMMISSIONING LIABILITIES
Decommissioning liabilities include the net present value of the estimated cost of reclaiming
exploration ground on the Company’s Centennial, Gas Hills and Ticaboo projects. The
Company has no material restoration, rehabilitation and environmental obligations on its
other uranium projects as environmental disturbance to date has been minimal or
reclamation has been completed.
The Company assumed reclamation bonds on acquisition of URZ Energy of $63,000 for Gas
Hills and $34,000 for Ticaboo. All reclamation bonds have been recorded on the consolidated
statement of financial position as at December 31, 2018, unless surety bond financing was
obtained.
10. WARRANT LIABILITIES
Share purchase warrants are considered a derivative liability, as the currency denomination
of the exercise price is different from the functional currency of the Company.
The share purchase warrant liability was revalued as at December 31, 2018 and 2017 using
the Black-Scholes option pricing model with the following assumptions: a risk free interest
rate of 1.85% (2017 – 1.66%); an expected volatility of 58.4% (2017 – 58.8-67.2%); an
expected life of 1-3 years (2017 – 1-3 years); a forfeiture rate of zero (2017 – zero); an
expected dividend of zero (2017 – zero); and an exchange rate of 1.3642 (2017 – 1.2545).
Page | 36
20182017Balance, beginning of year142,918$ 129,933$ Assumed on acquisition of URZ Energy62,144 - Additions1,281 - Accretion17,099 12,985 Balance, end of year223,442$ 142,918$ Year ended December 31,20182017Balance, beginning of year258,116$ 596,602$ Issuance of warrants - private placements68,055 209,923 Loss on revaluation (51,789) (570,389) Currency translation effect(26,728) 21,980 Balance, end of year247,654$ 258,116$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
11. EQUITY
11.1 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, 2018 and 2017, the Company had 169,833,806
and 83,619,850 common shares outstanding, respectively, and no preferred shares were
outstanding.
11.2
Issued share capital
During the year ended December 31, 2018, the Company completed the following equity
transactions:
•
•
•
•
•
•
In January 2018, the Company closed the second and final tranche of its non-brokered
private placement for gross proceeds of $157,366 (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
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 until December
22, 2020.
The warrants were valued on a relative fair value basis at $16,562 using the Black-
Scholes option pricing model with the following assumptions: a risk-free interest rate
of 1.99%; an expected volatility of 61.1%; an expected life of 3 years; a forfeiture rate
of zero; an expected dividend of zero; and an exchange rate of 1.2321.
In March 2018, the Company issued 186,512 common shares to a shareholder in
settlement of $36,169 (C$46,628) of trade and other payables.
In March 2018, the Company issued 104,166 common shares valued at $19,391
(C$25,000) to repurchase royalties on the Dewey Burdock Project, see Note 7.
In June 2018, the Company issued 578,822 common shares to a director valued at
$108,828 to settle trade and other payables of $187,500 and accordingly recorded a
gain on settlement of $78,672.
In July 2018, the Company issued 550,000 common shares to settle $93,500 of
outstanding employee remuneration. As a result, $93,500 was reclassified from
contributed surplus to share capital.
In July 2018, the Company issued 57,920,716 common shares valued at $11,237,756
for the acquisition of URZ Energy, see Note 6. In addition, the Company issued
186,393 common shares valued at $36,164 for transaction costs.
Page | 37
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
11.
EQUITY (Continued)
11.2
Issued share capital (Continued)
•
•
In July 2018, the Company issued 1,268,000 common shares valued at $246,017 to
settle trade and other payables of $201,830 and accordingly recorded a loss on
settlement of $44,187.
In July 2018, the Company issued 11,269,243 common shares valued at $2,201,024
in full and final settlement of the Shareholders’ Loan, see Note 8.1.
• During the year ended December 31, 2018, the Company issued 11,950,866 common
shares for gross proceeds of $1,827,078 pursuant to the exercise of share purchase
warrants.
• During the year ended December 31, 2018, the Company issued 1,115,301 common
shares to settle $215,344 owing pursuant to the Company’s employee share purchase
plan (“ESPP”) and 303,937 common shares to settle $58,669 owing pursuant to the
Company’s director services agreements (“DSA”).
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 $916,995 (C$1,141,904) through the issuance of 4,391,938 units at a
price of C$0.26 per unit. Each unit consisted 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 until July 27, 2020. The
warrants were valued on a relative fair value basis at $165,249. The Company paid
cash finders’ fees and other share issue costs of $37,432.
In connection with this private placement, the Company issued 1,695,968 share
purchase warrants and 500,000 share purchase warrants were issued to an insider
of the Company upon receipt of disinterested shareholder and TSX approval, which
was received in July 2018.
In addition, 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 option
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; an
expected dividend of zero; and an exchange rate of 1.2498.
Page | 38
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
11. EQUITY (Continued)
11.2
Issued share capital (Continued)
•
•
•
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.
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 $436,942 (C$558,750) through the issuance of
2,235,000 units at a price of C$0.25 per unit. Each unit consisted 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 until
December 22, 2020. The warrants were valued on a relative fair value basis at
$28,462. The Company paid cash finders’ fees and other share issue costs of $17,574.
In connection with this private placement, the Company issued 617,500 share
purchase warrants and 500,000 share purchase warrants were issued to an insider
of the Company upon receipt of disinterested shareholder and TSX approval, which
was received in July 2018.
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 option 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; an expected
dividend of zero; and an exchange rate of 1.2545.
• 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 ESPP and 288,448
common shares to settle $61,060 owing pursuant to the Company’s DSA.
Page | 39
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
11. EQUITY (Continued)
11.3
Share purchase warrants
The continuity of share purchase warrants for the year ended December 31, 2018 is as
follows:
* If the closing price of Azarga Uranium common shares is C$0.55 or greater per share for 10
consecutive trading days, the warrants will expire, at the sole discretion of the Company, 30
days after the date on which the Company provides notice of such fact to the holders thereof.
The weighted average remaining contractual life is 1.04 years.
In July 2018, the Company issued 1,000,000 share purchase warrants to an insider of the
Company as part of two private placements completed in 2017. The Company issued 500,000
share purchase warrants with an exercise price of $0.36 and an expiry date of July 27, 2020
and 500,000 share purchase warrants with an exercise price of C$0.35 and an expiry date of
December 22, 2020 upon receipt of disinterested shareholder and TSX approval.
The 1,000,000 warrants were valued at $51,493. The warrants were valued using the Black-
Scholes option pricing model with the following assumptions: a risk free interest rate of
1.99%; an expected volatility of 61.09%; an expected life of 2-3 years; a forfeiture rate of zero;
an expected dividend of zero; and an exchange rate of 1.3143.
Page | 40
Expiry dateExercise price C$Balance, December 31, 2017IssuedExercisedExpiredBalance, December 31, 2018September 23, 20190.35$ 4,621,665 - - - 4,621,665 July 27, 20200.36$ 1,833,968 500,000 - - 2,333,968 December 22, 20200.35$ 677,500 890,000 - - 1,567,500 August 15, 20180.20$ - 14,806,700 (11,950,866) (2,855,834) - June 19, 2019 *0.375$ - 2,304,184 - - 2,304,184 7,133,133 18,500,884 (11,950,866) (2,855,834) 10,827,317 Weighted average exercise price (C$)0.35$ 0.23$ 0.20$ 0.20$ 0.36$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
11. EQUITY (Continued)
11.3
Share purchase warrants (Continued)
The continuity of share purchase warrants for the year ended December 31, 2017 is as
follows:
11.4 Equity settled compensation arrangements
ESPP
In 2015, the Company adopted an ESPP which was amended in July 2018. The Company is
authorized to issue up to 6,000,000 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 on the TSX immediately preceding the end of each calendar quarter. The
Employee Contribution and the Matching Contribution are expensed in the period in which
they are incurred with the offsetting amount being recorded in contributed surplus until the
common shares are issued.
For the years ended December 31, 2018 and 2017, Employee Contributions totaled $124,941
and $143,366, respectively, and Matching Contributions totaled $83,296 and $95,574,
respectively. As at December 31, 2018, a total of 3,682,169 common shares have been issued
pursuant to the ESPP. Subsequent to December 31, 2018, the Company issued 298,310
common shares pursuant to the ESPP, see Note 24.
Page | 41
Expiry dateExercise price C$Balance, December 31, 2016IssuedExercisedExpiredBalance, December 31, 2017September 23, 20190.35$ 4,621,665 - - - 4,621,665 July 27, 20200.36$ - 1,833,968 - - 1,833,968 December 22, 20200.35$ - 677,500 - - 677,500 4,621,665 2,511,468 - - 7,133,133 Weighted average exercise price (C$)0.35$ 0.36$ -$ -$ 0.35$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
11. EQUITY (Continued)
11.4 Equity settled compensation arrangements (Continued)
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 on the TSX
immediately preceding the end of each calendar quarter. Amounts settled in accordance with
the DSA are expensed in the period in which they are incurred with the offsetting amount
being recorded in contributed surplus until the common shares are issued.
For the years ended December 31, 2018 and 2017, $56,277 and $61,766 was expensed under
the DSA, respectively. As at December 31, 2018, a total of 1,233,041 common shares had been
issued pursuant to the DSA. Subsequent to December 31, 2018, the Company issued 76,247
common shares pursuant to the DSA, see Note 24.
12.
SHARE OPTION RESERVE
12.1
Stock option plan
In July 2018, the Company adopted a new rolling stock option plan, which permits the Board
of Directors of the Company to grant stock options for up to 10% of the outstanding common
shares of the Company. The exercise price of an option shall not be less than the discounted
market price at the time of granting as prescribed by the policies of the TSX. The maximum
term of the stock options is ten years from the grant date. Vesting terms are at the discretion
of the Board of Directors.
Page | 42
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
12.
SHARE OPTION RESERVE (Continued)
12.2
Stock option continuity
The continuity of stock options for the year ended December 31, 2018 is as follows:
As at December 31, 2018, 9,644,169 stock options were exercisable.
The weighted average remaining contractual life is 5.11 years.
The continuity of stock options for the year ended December 31, 2017 is as follows:
Page | 43
Expiry dateExercise priceC$Balance, December 31, 2017IssuedExercisedExpired/ ForfeitedBalance, December 31, 2018April 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$ 1,030,000 - - (15,000) 1,015,000 May 19, 20210.36$ 1,185,000 - - (20,000) 1,165,000 May 16, 20220.32$ 2,060,000 - - (20,000) 2,040,000 March 14, 20270.075$ - 4,480,000 - - 4,480,000 August 22, 20230.24$ - 3,692,500 - - 3,692,500 5,903,762 8,172,500 - (1,290,426) 12,785,836 Weighted average exercise price (C$)0.43$ 0.15$ -$ 0.52$ 0.24$ Expiry dateExercise priceC$Balance, December 31, 2016IssuedExercisedExpired/ ForfeitedBalance, December 31, 2017May 14, 20172.00$ 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 price (C$)0.58$ 0.32$ -$ 1.93$ 0.43$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
12.
SHARE OPTION RESERVE (Continued)
12.3
Share-based compensation
During the years ended December 31, 2018 and 2017, the Company recognized share-based
compensation expense of $303,346 and $230,698, respectively, of which $266,044 and
$198,706, respectively has been allocated to administrative expenses and $37,302 and
$31,992, respectively has been allocated to exploration and evaluation assets.
In August 2018, the Company granted 3,692,500 stock options to officers, employees,
directors and other eligible persons at an exercise price of C$0.24 with an expiry date of
August 22, 2023. The weighted average fair value of the options granted was estimated at
C$0.14 per option at the grant date using the Black-Scholes option pricing model with the
following assumptions: a risk-free interest rate of 1.53%; an expected volatility of 68.5%; an
expected life of 5 years; a forfeiture rate of zero; an expected dividend of zero; and an
exchange rate of 1.302.
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$0.17 per option at
the grant date using the Black-Scholes option pricing model with the following assumptions:
a risk-free interest rate of 1.12%; an expected volatility of 78.8%; an expected life of 5 years;
a forfeiture rate of zero; an expected dividend of zero; and an exchange rate of 1.3618.
13. ADMINISTRATIVE EXPENSES
Page | 44
20182017Salaries and benefits1,011,459$ 984,264$ Consulting and professional fees401,444 233,328 Corporate administration462,429 240,807 Depreciation3,919 2,123 Share-based compensation266,044 198,706 2,145,295$ 1,659,228$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
14.
FINANCE COSTS
15. UNREALIZED GAIN
16. REALIZED GAIN (LOSS)
Page | 45
Note20182017Interest expense on Shareholders' Loan8.1143,219$ 209,670$ Interest expense on URZ Energy Loan8.23,567 - Interest expense on other loans payable8.38,127 6,808 154,913$ 216,478$ Year ended December 31,Note20182017Gain on revaluation of investment5-$ 25,412$ Gain on warrant liabilities1051,789 570,389 51,789$ 595,801$ Year ended December 31,Note20182017Gain on settlement of trade and other payables11.234,485$ -$ Loss on sale of investments5- (22,570) Other gains- 18,632 34,485$ (3,938)$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
17.
RELATED PARTY TRANSACTIONS AND BALANCES
17.1 Related party transactions
During the years ended December 31, 2018 and 2017, the Company had related party
transactions with directors, management and shareholders including:
•
Interest accruing to certain shareholders of the Company on the Shareholders’ Loan,
see Note 8.1;
• The issuance of 11,269,243 common shares to settle the Shareholders’ Loan, see Note
8.1;
• The issuance of 186,512 common shares to a shareholder of the Company to settle
trade and other payables, see Note 11.2;
• The issuance of 578,822 common shares to a director of the Company to settle trade
and other payables, see Note 11.2; and
• The issuance of 450,000 and 750,000 common shares, respectively, to executive
management of the Company to settle employee remuneration, see Note 11.2.
17.2 Key management personnel compensation
The remuneration of the Company’s directors and other key management personnel, who
have the authority and responsibility for planning, directing and controlling the activities of
the Company, consisted of the following:
Page | 46
20182017Salaries and benefits841,476$ 724,540$ Consulting and professional fees139,926 7,386 Share-based compensation200,791 176,296 1,182,193$ 908,222$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
17.
RELATED PARTY TRANSACTIONS AND BALANCES (Continued)
17.3 Related party liabilities
Included in trade and other payables as at December 31, 2018 and 2017 is $326,422 and
$716,838, respectively, owing to related parties of the Company, of which $230,000 and
$325,500, respectively, is owed to a former director of the Company. On February 14, 2018,
the Company entered into an amended severance agreement with this director to pay the
remaining severance payments over 49 months, whereby the amount payable was increased
to $370,000, of which $140,000 was paid during the year ended December 31, 2018. The
Company has classified $80,000 as current and $150,000 as non-current as at December 31,
2018. In June 2018, the Company settled other deferred compensation of $187,500 with this
same former director through the issuance of 578,822 common shares of the Company, see
Note 11.2.
Page | 47
20182017Loan payable to shareholders-$ 2,057,805$ Trade and other payables for key management personnel - current176,422 716,838 Trade and other payables for key management personnel - non-current150,000 - 326,422$ 2,774,643$ As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
18.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
18.1 Categories of financial instruments
Financial instruments are classified into one of the following categories: FVTPL; FVTOCI; or,
at amortized cost. The carrying values of the Company’s financial instruments are classified
into the following categories:
Page | 48
Financial assets20182017Amortized costCash352,001$ 432,192$ Restricted cash39,963 39,176 Reclamation bonds99,000 - 490,964$ 471,368$ Financial liabilities20182017Amortized costTrade and other payables1,452,085$ 1,525,906$ Loans payable- 2,104,678 Decommissioning liabilities223,442 142,918 Fair value through profit or lossFair value through profit or lossWarrant liabilities247,654 258,116 1,923,181$ 4,031,618$ As at December 31,As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
18.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
18.2 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 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 warrant liabilities is recorded at fair value using Level 3 of
the fair value hierarchy. The carrying value of warrant liabilities is determined using the
Black-Scholes option pricing model.
The carrying values of cash, trade and other payables, and loans payable approximate their
fair values because of the short-term nature of these financial instruments and are classified
as financial assets and liabilities at amortized cost and are reported at amortized cost.
The carrying values of restricted cash, reclamation bonds and decommissioning liabilities
approximate their fair values and are classified as financial assets and liabilities at amortized
cost and are reported at amortized cost.
Page | 49
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
18.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
18.3 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, 2018, 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.
Page | 50
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
18.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
18.3 Financial risk management objectives and policies (Continued)
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, 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.
Page | 51
As at December 31, 20181-3 months3 months - 1 year1-5 yearsTotalTrade and other payables1,257,085$ 45,000$ 150,000$ 1,452,085$ 1,257,085$ 45,000$ 150,000$ 1,452,085$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
19. CAPITAL RISK MANAGEMENT
The Company’s capital risk management objectives are to safeguard the Company’s ability to
continue as a going concern 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 adjusts it in light of changes in economic
conditions and the risk characteristics of the underlying assets. To maintain or adjust the
capital structure, the Company may issue new shares, issue new debt or acquire or dispose
of assets. To facilitate 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, 2018, 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, 2018, the Company’s capital structure consists of its equity, see Note 11.
20. COMMITMENTS
* annual license payments include lease, mineral claim, and exploration license payments
** the Company will use best efforts to renegotiate the Centennial Project option agreement
before the contingent payment is due
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.
Page | 52
Within 1 year2-4 yearsOver 4 yearsTotalAnnual license payments *676,386$ 674,793$ 1,326,198$ 2,677,377$ Centennial option agreement **3,165,000 - - 3,165,000 Dewey Burdock option agreements62,500 187,500 1,768,750 2,018,750 Office leases54,431 104,203 20,874 179,508 3,958,317$ 966,496$ 3,115,822$ 8,040,635$
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
21.
SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2018, the Company completed the following non-cash
investing and financing activities:
•
•
•
•
•
•
•
•
•
Issued 57,920,716 common shares valued at $11,237,756 for acquisition of URZ
Energy;
Issued 186,393 common shares valued at $36,164 for transaction costs;
Issued 11,269,243 common shares to settle the Shareholders’ Loan of $2,201,024;
Issued 1,115,301 common shares to settle $215,344 owing pursuant to the
Company’s ESPP;
Issued 303,937 common shares to settle $58,669 owing pursuant to the Company’s
DSA;
Issued 104,166 common shares to repurchase royalties for $19,391;
Issued 2,033,334 common shares to settle trade and other payables of $391,014;
Issued 550,000 common shares to settle $93,500 of outstanding employee
remuneration;
Issued 390,000 share purchase warrants valued at $16,562 as part of the January
2018 financing; and
• No cash interest or income taxes were paid.
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;
Issued 2,511,468 share purchase warrants valued at $209,923 as part of the July and
December 2017 financings; and
• No cash interest or income taxes were paid.
Page | 53
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
22.
NON-CONTROLLING INTEREST
The Company’s non-controlling interest relates to its 70% interest in UrAsia.
Changes in the Company’s non-controlling interest for the years ended December 31, 2018
and 2017 were as follows:
Set out below is the summarized financial information for 100% of UrAsia’s net assets, total
comprehensive income (loss) and cash. The information is presented before considering
inter-company consolidation and elimination adjustments.
Page | 54
20182017Balance, beginning of year(449,996)$ 1,246,780$ Non-controlling interest from net loss(40,927) (1,701,951) Non-controlling interest from other comprehensive income (loss)(3,554) 5,175 Balance, end of year(494,477)$ (449,996)$ Year ended December 31,20182017CurrentAssets129,395$ 103,431$ Liabilities(424,147) (15,451) Total current net assets (liabilities)(294,752) 87,980 Non-currentAssets4,187,711 4,030,524 Liabilities(975,342) (1,020,705) Total non-current net assets3,212,369 3,009,819 Net assets2,917,617$ 3,097,799$ As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
22.
NON-CONTROLLING INTEREST (Continued)
Page | 55
20182017Net loss before tax(117,560)$ (6,416,438)$ Deferred income tax recovery17,222 992,989 Net loss(100,338) (5,423,449) Other comprehensive income (loss)(35,108) 14,022 Total other comprehensive loss(135,446)$ (5,409,427)$ As at December 31,20182017Net cash used in operating activities(143,778)$ (20,440)$ Net cash generated from (used in) investing activities243,370 (1,051,759) Net cash generated from financing activities- 1,103,534 Net increase in cash99,592 31,335 Cash, beginning of year30,556 585 Effect of foreign exchange rate changes on cash(753) (1,364) Cash, end of year129,395$ 30,556$ Year ended December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
23. DEFERRED INCOME TAX
23.1 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.
23.2 Deferred income tax expenses
23.3 Deferred tax balances
The Company’s deferred tax liabilities consist of the following amounts:
As at December 31, 2018 and 2017, the Company has not recognized any deferred tax assets.
Page | 56
20182017Net loss before income tax2,227,725$ 7,516,632$ Statutory tax rate27%26%Deferred income tax recovery based on statutory rate601,000$ 1,954,000$ Effect of different tax rates applicable in foreign jurisdictions(46,000) (982,000) Effect of reduction in foreign statutory rate- 1,286,000 Unrecognized deferred tax assets(966,000) (283,000) Effect of non-deductible expenses and non-taxable revenue and other230,000 261,000 Deferred income tax (expense) recovery(181,000)$ 2,236,000$ Year ended December 31,20182017Exploration and evaluation assets3,119,790$ 2,920,790$ Inter-company loans eliminated on consolidation1,114,000 1,132,000 Deferred tax liabilities4,233,790$ 4,052,790$ As at December 31,
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
23. DEFERRED INCOME TAX (Continued)
23.3 Deferred tax balances (Continued)
Changes in the Company’s deferred tax liabilities for the years ended December 31, 2018 and
2017 were as follows:
23.4 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, 2018 and 2017, the Company had unrecognized deferred tax assets
attributable to deductible temporary differences of $21,000 and $110,000, respectively,
which are primarily related to value added tax receivables and certain deferred payments not
being recognized.
The deferred tax assets related to the temporary differences and non-capital losses were not
recognized as their recoverability was not considered to be probable.
23.5 Expiry dates
The expiry dates of the Company’s unused tax losses are as follows:
Page | 57
20182017Opening balance 4,052,790$ 6,288,790$ Deferred income tax (recovery) expense 181,000 (2,236,000) Deferred tax liabilities 4,233,790$ 4,052,790$ Year ended December 31,20182017Non-capital losses3,565,000$ 2,509,000$ Deductible temporary differences21,000 110,000 Total unrecognized amounts3,586,000$ 2,619,000$ As at December 31,Non-capital lossesUnited States6,759,000$ 2027 - 2038Kyrgyz Republic3,267,000 2019 - 2023Canada6,346,000 2027 - 2038Hong Kong641,000 Indefinite17,013,000$ As at December 31, 2018
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2018
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
24.
SUBSEQUENT EVENTS
Subsequent to December 31, 2018, the Company completed the following transactions:
•
•
In January 2019, the Company issued 298,310 common shares to settle $53,793 owing
pursuant to the Company’s ESPP and 76,247 common shares to settle $13,750 owing
pursuant to the Company’s DSA; and
In March 2019, the Company closed a non-brokered private placement for gross proceeds
of C$3,014,391 through the issuance of 13,106,046 units at a price of C$0.23 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$0.31 per share until March 20, 2022. The Company paid cash finder’s fees of C$7,486.
Page | 58
Azarga Uranium Corp.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2018
(Expressed in U.S. Dollars)
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
The following is management’s discussion and analysis (“MD&A”) of the results of
operations and financial condition of Azarga Uranium Corp. (“Azarga Uranium”) for the
year ended December 31, 2018 and up to the date of this MD&A, and should be read in
conjunction with the accompanying audited consolidated financial statements for the
year ended December 31, 2018, 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”). All references to $ in this MD&A refer to the United States dollar and all
references to C$ refer to the Canadian dollar.
Additional information relating to the Company, including the Annual Information Form,
is available under the Company’s profile on SEDAR at www.sedar.com
The effective date of this MD&A is March 29, 2019.
DESCRIPTION OF THE BUSINESS
Azarga Uranium was incorporated on February 10, 1984 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), the Frankfurt Stock Exchange (Symbol:
P8AA), and the OTCQB Venture Market (Symbol: AZZUF). Azarga Uranium, together with
its subsidiaries (collectively referred to as the “Company”), is an integrated uranium
exploration and development company.
The Company controls eleven uranium projects and prospects in the United States of
America (the “US”), located in South Dakota, Wyoming, Utah and Colorado, and in the
Kyrgyz Republic, with a primary focus of developing in-situ recovery (“ISR”) uranium
projects in the US. The Dewey Burdock ISR uranium project in South Dakota (the “Dewey
Burdock Project”) is the Company’s initial development priority and has received its
Nuclear Regulatory Commission license and draft Class III and Class V Underground
Injection Control (“UIC”) permits from the Environmental Protection Agency (the “EPA”).
The Company also owns the Gas Hills, Juniper Ridge, Dewey Terrace and Aladdin Projects
in Wyoming, the Centennial Project in Colorado, uranium exploration properties in
Wyoming, Utah and Colorado and 70% of the Kyzyl Ompul Project in the Kyrgyz Republic.
2
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
ACQUISITION OF URZ ENERGY
On July 5, 2018, the Company completed the acquisition of URZ Energy Corp. (“URZ
Energy”) pursuant to a court ordered plan of arrangement for consideration of
57,920,716 common shares. Each URZ Energy shareholder received two Azarga Uranium
shares for each URZ Energy share (the “Exchange Ratio”).
Sandra MacKay, Glenn Catchpole and Todd Hilditch joined Joseph Havlin, Delos Cy
Jamison and Matthew O’Kane on the Azarga Uranium Board of Directors, with Glenn
Catchpole acting as Non-Executive Chairman. Blake Steele continues in his role as
President & CEO of Azarga Uranium.
The acquisition brings together two companies with a similar goal of developing US-
focused, ISR uranium production at a time when US domestic supply has emerged as a
critical factor in the push for energy security. Transaction highlights include:
Consolidation of uranium assets with a focus on the US – combined measured
& indicated (“M&I”) resources of 40.1 million pounds of U3O8, plus additional
inferred resources of 6.0 million pounds of U3O8, all located in the United States.
Advanced-stage permitting at the Dewey Burdock Project – the Dewey
Burdock Project has already received several key licenses/permits and is in the
process of obtaining final regulatory approvals required for project construction.
Pipeline of growth assets with continued exploration potential – the Gas Hills
Project, which has been the subject of historical mining, has recently been
reinterpreted for its potential to be mined via ISR methods. A pipeline of other
assets, including the Juniper Ridge, Dewey Terrace and Aladdin Projects located
in Wyoming and the Centennial Project located in Colorado; provide further
uranium optionality.
Amalgamation of sector-leading
ISR development and production
experience – through its management, directors and advisors, Azarga Uranium
now collectively possesses over 100 years of experience in the exploration,
development, permitting, operation and post-mining groundwater restoration of
ISR uranium mines.
Strategic platform for further consolidation – strengthened platform through
which to continue to evaluate and consolidate additional low-cost, domestic ISR
uranium projects in the United States.
Enhanced market positioning – a more diversified shareholder base, along with
an increased market capitalization to broaden investor and analyst appeal. On
August 23, 2018, the Company’s common shares were listed for trading on the
3
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
OTCQB Venture Market in the United States to supplement the Company’s listings
on the Toronto and Frankfurt stock exchanges.
Strengthened balance sheet – concurrent with the acquisition, the Company
issued 11,269,243 common shares to settle the $1.8 million shareholders loan
plus accrued interest (the “Shareholders’ Loan”). In addition, on completion of the
acquisition, the Company acquired cash reserves of $570,525 and $1,827,078 of
cash was generated through the exercise of share purchase warrants prior to their
expiry on August 15, 2018.
OPERATIONAL HIGHLIGHTS
In addition to the acquisition of URZ Energy and the settlement of the Shareholders’ Loan,
the Company’s significant events and highlights for the year ended December 31, 2018
and to the date of this MD&A are as follows:
Dewey Burdock Project resource update – in December 2018, the Company
published an updated technical report supporting an increased National
Instrument 43-101 (“NI 43-101”) resource estimate for the Dewey Burdock
Project in South Dakota and expects to complete an updated preliminary
economic assessment (“PEA”) in the second quarter of 2019.
Dewey Burdock Project permitting update – the Atomic Safety and Licensing
Board (the “ASLB”) denied the Oglala Sioux Tribe’s motion for summary
disposition and its request to stay or revoke the Company’s Dewey Burdock
Project United States Nuclear Regulatory Commission (“NRC”) license. In addition,
the NRC Commission issued a decision upholding the effectiveness of the
Company’s NRC license in consideration of the remand from the United States
Court of Appeals for the District of Columbia Circuit (the “DC Circuit Court”). The
Company’s NRC license for the Dewey Burdock Project continues to remain in
good standing and the ASLB has established procedures for resolution of the final
remaining contention. The NRC staff have developed an approach, consistent with
one of the options provided by the ASLB, to address the only remaining NRC
license contention. The Company plans to support this approach and looks
forward to the successful resolution of the only remaining contention in a timely
manner.
Gas Hills Project, favorable permeability suitable for ISR mining – on July 20,
2018, the Company announced positive results of a hydrologic study of the
permeability of the Wind River formation confined aquifer, the primary host of
uranium mineralization at the Company’s Gas Hills Uranium Project. The
favorable permeability, coupled with the
favorable piezometric surface
conditions, confirms that these two important hydrologic parameters are suitable
for ISR uranium mining.
4
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
Kyzyl Ompul Project earn-in agreement – on April 19, 2018, the Company
announced that its 70% controlled subsidiary, UrAsia in Kyrgyzstan Limited
Liability Company (“UrAsia”), had executed a replacement earn-in agreement (the
“Replacement Agreement”) with Central Asian Uranium Company Limited
Liability Company (“Central”) to replace the previous earn-in agreement which
was terminated in accordance with its terms. The Replacement Agreement
provides Central with an option to earn a 100% interest in UrAsia’s Kyzyl Ompul
Project in the Kyrgyz Republic. To maintain the option and earn a 100% interest,
Central is required to pay UrAsia $5,850,000 in cash payments and fund
$1,500,000 of exploration and development expenditures by December 1, 2020.
INDUSTRY TRENDS AND OUTLOOK
Although uranium prices have recovered from their 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 9911 nuclear reactors that are operable, under construction,
planned or proposed compared to 9832 before the Fukushima incident in 2011.
Of the 991 nuclear reactors, 450 reactors are operable1. A total of 2031 nuclear
reactors are under construction or planned, which represents approximately 45%
of the current operating fleet. China, Russia and India lead the world in terms of
the number of nuclear power plants under construction, with thirteen, seven and
seven, respectively1. China continues to accelerate their nuclear growth plans and
intends to have 58 GWe of installed capacity by 2020-21 and 120-150 GWe by
2030 3 (currently 43 GWe1). 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. In 2016, Cameco Corp. (“Cameco”)
suspended production and transitioned its Rabbit Lake Mine to care and
maintenance, which produced 4.2 million pounds of uranium in 20154, curtailed
its United States operations and announced production halts at its McArthur River
and Cigar Lake mines for periods in 2017. In 2017, Cameco announced temporary
production suspensions at its McArthur River/Key Lake operation, which Cameco
expects will remove 18 million pounds of uranium from the market in 20185. In
July 2018, Cameco announced the decision to continue the shutdown of McArthur
1 World Nuclear Association – World Nuclear Power Reactors & Uranium Requirements (January 2019)
2 Haywood Securities Inc. – Target & Commodity Price Revisions (January 25, 2017)
3 World Nuclear Association – Nuclear Power in China (January 2019)
4 Cameco 2016 Annual Information Form dated March 23, 2017
5 Cameco Corp. Management Discussion & Analysis for the quarter ended June 30, 2018
5
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
River/Key Lake indefinitely. Further, Kazatomprom announced a 20% production
cut over a period of three years commencing in January 2018, which equates to
approximately 7.5% of global uranium production for 2018 as forecast by UxC
(UMO Q4)6.
Despite the Company’s belief that a uranium sector turnaround has commenced, its
strategies are focused on making prudent plans to progress its business, while 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 – the Company
is working to resolve the only 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.
Complete updated PEA at the Dewey Burdock Project and identify uranium
resources at the Dewey Terrace Project – in December 2018, the Company
published an increased resource estimate for the Dewey Burdock Project and
expects to publish an updated PEA in the second quarter of 2019. The Company
is also continuing the evaluation and analysis of historical data at the Dewey
Terrace Project with the goal of identifying additional uranium mineralization.
Focus on ISR amenability at the Gas Hills Project – the Company has completed
hydrological studies which indicate that permeability and piezometric surface
conditions are suitable for ISR uranium mining. The Company will continue to
evaluate future ISR development options at Gas Hills, consistent with the
Company’s strategy of developing US-focused ISR uranium projects.
Future uranium production off-take – the Company will continue 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.
6 NAC Kazatomprom JSC news release December 4, 2017
6
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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 December 2018 resource estimate demonstrates that the Dewey Burdock
Project is one of the United States’ leading undeveloped ISR uranium deposits;
on completion of permitting at the Dewey Burdock Project, the Company expects
to 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.
MINERAL PROPERTIES
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 12,613 surface acres and 16,962 net mineral acres. The
Dewey Burdock Project is the Company’s initial development priority.
Summary of Mineral Resources
In December 2018, the Company filed an updated NI 43-101 compliant independent
resource estimate for the Dewey Burdock Uranium Project prepared by Rough Stock
Mining Services (the “Dewey Burdock Report”) with an effective date of November 12,
2018.
Dewey Burdock Project ISR Mineral Resource estimate
Measured
Resources
Indicated
Resources
Measured
plus Indicated
Resources
5,200,000 2,328,000 7,528,000
Tons
0.132
Average grade (% U3O8)
5.51
Average thickness (feet)
Average grade-thickness (“GT”) 0.73
Uranium (pounds)
1. Mineral resources that are not mineral reserves do not have demonstrated economic
viability.
732,000
0.056
5.95
0.333
818,000
13,779,000 3,160,000 16,939,000
Inferred
Resources
0.113
5.69
0.64
0.068
5.83
0.396
7
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
In addition to the ISR mineral resource estimate, the NI 43-101 resource estimate
includes an additional 1,060,000 pounds of non-ISR (located above the water table)
Measured resources at 0.057% U3O8. These resources are not included in the Measured
resources presented in the table above.
Details of the assumptions and parameters used with respect to the Dewey Burdock
Report, including information on data verification, are set out in the Dewey Burdock
Report dated December 21, 2018, a copy of which is available under the Company’s
profile on SEDAR at www.sedar.com.
The Company’s immediate objective is to complete an updated PEA based on the updated
2018 resource estimate and to obtain the necessary permits and licenses to advance the
Dewey Burdock Project to the construction phase.
Summary of Permitting
Permit, License or Approval Name
Agency
Status
UIC Class III Permit
EPA
Draft permits issued March
UIC Class V Permit
Final Source and By-product
Materials License
NRC
2017
Public comment period
closed June 2017
Working with EPA to obtain
final permits
Issued April 2014 and in
good standing
Final contention pertaining
to identification and
protection of historic and
cultural resources has path
to completion
Ground Water Disposal Plan
DENR
Applications complete and
Water Rights Permit
Large Scale Mine Plan Permit
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)
Plan of Operations
BLM
Approval anticipated on
8
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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, an evidentiary hearing was held with the ASLB in regard 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 the NRC staff has considered all issues related to the NRC license. In April 2015,
the ASLB ruled on seven contentions raised by the consolidated intervenors and the
Oglala Sioux Tribe (collectively, the “Intervenors”) regarding the NRC license for the
Dewey Burdock Project. For five contentions, including those related to groundwater
usage, groundwater quality, ability to contain fluid migration, mitigation measures, and
connected actions, the ASLB ruled in favor of 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
9
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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. As a result,
the Company filed an appeal with the NRC Commission in an effort to resolve the
remaining contention; however, the appeal was not successful.
In 2018, the Company, the NRC staff and the Oglala Sioux Tribe agreed, in principle, to a
process for resolving the remaining contention, however due to differences in approach
between the Oglala Sioux Tribe and the NRC staff, both parties filed motions for summary
disposition. The Company filed a brief in support of the NRC staff motion. The ASLB
denied the Oglala Sioux Tribe’s motion for summary disposition and its request to stay or
revoke the Company’s Dewey Burdock Project NRC license and the NRC staff’s summary
disposition motion to resolve the remaining contention. However, the ASLB established
procedures for resolution of the remaining contention and provided the NRC staff with
two options to conclude the remaining contention. The NRC staff have developed an
approach, consistent with one of the options provided by the ALSB, to address the only
remaining NRC license contention. The Company plans to support the approach
developed by the NRC staff and looks forward to the successful resolution of the only
remaining contention in a timely manner.
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 Court”). On July 23, 2018, the Company reported that the DC Circuit Court
issued an order dismissing most of the rulings challenged by the Oglala Sioux Tribe due
to lack of jurisdiction; however, the DC Circuit Court remanded the decision to keep the
Company’s NRC license in effect to the NRC Commission due to the unresolved NEPA
contention. On January 31, 2019, the NRC Commission issued a decision upholding the
effectiveness of the Company’s NRC license in consideration of the remand from the DC
Circuit Court.
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 and 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
10
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
approvals include the final Class III and Class V 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”) permits. All permit
applications have been deemed complete and have been recommended for conditional
approval by the DENR staff. The GDP and WR permits are subject to hearing with public
participation. The hearing commenced on October 28, 2013 and continued through
November 25, 2013, at which point it was determined that the hearing will resume once
the NRC and EPA have ruled and set the federal surety. The LSM permit has been finalized
subject to continuation of a hearing before the Board of Minerals and Environment, which
commenced the week of September 23, 2013 and continued through November 5, 2013,
at which point it was determined that the hearing will resume once the NRC and EPA have
ruled and set the federal surety. Subject to improved market conditions, the Company
plans to re-commence the regulatory process with the 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.
Dewey Terrace Project (100% interest) – Wyoming, USA – adjacent to Dewey Burdock
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.
Through mining leases and mining claims, the Dewey Terrace Project is comprised of
approximately 1,874 acres of surface rights and approximately 7,514 acres of net 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 owned by the Company (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 ISR amenability. Several drill holes encountered multiple intercepts
11
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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 eU3O8 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.
Gas Hills Project (100% interest), Wyoming, USA
The Company’s 100% owned Gas Hills Project is located in the historic Gas Hills uranium
district situated 45 miles east of Riverton, Wyoming. The Gas Hills Project consists of
approximately 1,280 surface acres and 12,960 net mineral acres of unpatented lode
mining claims, a State of Wyoming mineral lease, and private mineral leases, within a
brownfield site which has experienced extensive development including mine and mill
site production.
12
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
Summary of Mineral Resources
In June 2017, a technical report was prepared by BRS Inc. on the Gas Hills Project titled
“Amended and Restated Gas Hills Uranium Project, Mineral Resource and Exploration
Target NI 43-101 Technical Report, Fremont and Natrona Counties, Wyoming, USA” (the
“Gas Hills Report”) with an effective date of June 9, 2017. The Gas Hills Project contains
indicated uranium resources of 4.7 million pounds U3O8 (2.4 million tons at an average
grade of 0.098% U3O8) and inferred uranium resources of 2.5 million pounds U3O8 (2.3
million tons at an average grade of 0.054% U3O8) at a 0.1 GT cut-off. Mineral resources
that are not mineral reserves do not have demonstrated economic viability.
The uranium mineralization is contained in roll-front deposits hosted by arkosic
sandstone beds of the Eocene Wind River Formation. The deposits are stratabound and
occur from the surface to depths of approximately 450 feet in areas amenable to open-pit
mining, and to depths in excess of 1,200 feet, which may be amenable to ISR. Based on
areas of wide-spaced limited historical drilling and areas of past mine production, the
Company believes that there is sufficient geological evidence to interpret that
mineralization may extend from current mineral resource areas along identified trends.
Based on a detailed review of previous work, the Company has outlined five high priority
exploration targets within the project for follow-up including Day Loma, Day Loma/Loco-
Lee, Loco-Lee, George-Ver, and Bullrush.
Details of the assumptions and parameters used with respect to the Gas Hills Report,
including quality estimates and information on data verification, are available under the
SEDAR profile of URZ Energy at www.sedar.com.
Subsequent to issuing the Gas Hills Report, the Company commenced detailed ISR studies
on the Gas Hills Project. These studies focused on piezometric surface conditions and
permeability of the Wind River formation confined aquifer, the primary host of uranium
mineralization at the Company’s Gas Hills Uranium Project. The first study, announced
by URZ Energy on May 1, 2018, focused on piezometric surface conditions and
demonstrated that three of the primary deposits at URZ’s Gas Hills property, being Day
Loma, George-Ver and Loco-Lee, were principally located within a confined aquifer that
contains current hydrostatic head well above the minimum requirements to allow for the
successful use of ISR mining techniques.
The second study focused on permeability (also referred to as hydraulic conductivity). A
comprehensive review of pump test data for the Gas Hills Project and pump test data for
other mining operations and planned mining operations in Wyoming proximal to the Gas
Hills Project was conducted by Hydro-Engineering L.L.C (“Hydro-Engineering”). A
summary of the review is presented below for each project:
13
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
Project Name and Owner
Hydraulic Conductivity
Range (feet/day)
Permeability Range (darcy)
Gas Hills; Azarga
Uranium
Gas Hills (Peach);
Cameco
1.0 to 5.7
0.8 to 2.7
0.5 to 6.0
0.3 to 2.89
Lost Creek; Ur-Energy
0.27 to 2.78
0.13 to 1.3
Hydro-Engineering concluded that the hydraulic conductivity at the Gas Hills Project is
comparable to hydraulic conductivity values at other ISR mining operations and planned
mining operations in Wyoming proximal to the Gas Hills Project. Thus, the permeability
of the mineralized Wind River formation confined aquifer at Gas Hills is suitable for ISR
uranium mining.
The favorable report on permeability coupled with the favorable piezometric surface
conditions confirms that these two important hydrologic parameters are suitable for ISR
uranium mining. The Company will continue to evaluate future ISR development options
at the Gas Hills Project.
The Centennial Project (100% interest) – Colorado, USA
The Company’s 100% owned Centennial Project is located in the western part of Weld
County in north-eastern Colorado. Through property purchase and lease agreements, the
Centennial Project is comprised of approximately 1,365 acres of surface rights and 6,238
acres of net 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; however, the Company withdrew
its application in the fourth quarter of 2018. The EPA will retain the application should
the Company wish to resume the process. The majority of the major mine permit
applications for the Centennial Project have not been prepared or submitted to date.
In August 2010, a NI 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
14
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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 on SEDAR 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 Company is currently analyzing alternatives for the Centennial Project including
using best efforts to renegotiate the purchase option agreement on the project.
Juniper Ridge Project (100% interest), Wyoming, USA
The Company’s 100% owned Juniper Ridge Project is located in the southwest portion of
Wyoming, approximately 10 miles west of the town of Baggs. The Juniper Ridge Project
consists of approximately 640 surface acres and 3,240 net mineral acres of unpatented
lode mining claims and a State of Wyoming mineral lease and is located within a
brownfield site which has experienced extensive exploration, development, and mine
production.
In June 2017, a technical report was prepared by BRS Inc. and T.P. McNulty and Associates
Inc. on the Juniper Ridge Project titled “Juniper Ridge Uranium Project, Amended and
Restated 43-101 Mineral Resource and Preliminary Economic Assessment Technical
Report” (the “Juniper Ridge PEA”) with an effective date of June 9, 2017. The Juniper
Ridge Project contains indicated uranium resources of 6.0 million pounds U3O8 (5.1
million tons at an average grade of 0.058% U3O8) and inferred uranium resources of 0.2
million pounds U3O8 (0.1 million tons at an average grade of 0.085% U3O8) at a 0.1 GT
cut-off. Mineral resources that are not mineral reserves do not have demonstrated
economic viability.
Details of the assumptions and parameters used with respect to the Juniper Ridge PEA,
including quality estimates and information on data verification, are available under the
SEDAR profile of URZ Energy at www.sedar.com.
15
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
The Juniper Ridge 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 Juniper Ridge PEA will be realized. Mineral resources that are not
mineral reserves do not have demonstrated economic viability.
The Juniper Ridge PEA resulted in a pre-tax net present value of $27.3 million at a
discount rate of 8% and an internal rate of return of 26% compared to a post-tax net
present value of $19.9 million at a discount rate of 8% and an internal rate of return of
22% based on open pit mining and heap leach extraction of uranium. The Juniper Ridge
PEA assumed uranium prices of $65/lb U3O8, total direct operating costs of $39.77/lb
U3O8 and capital expenditures of $36.7 million.
While local mineralization displays some of the characteristics of known uranium
deposits in the Gas Hills uranium district and in the Powder River Basin of Wyoming, the
mineralization at the Juniper Ridge Project is sandstone hosted. Data sources for the
estimation of uranium mineral resources for the Juniper Ridge Project consists of 2,716
drill holes including radiometric equivalent data for 2,167 drill holes completed before
2011, Uranium Spectral Analysis Tool assay data for 400 drill holes completed during the
2011 drilling program, and radiometric equivalent and PFN assay data for 149 drill holes
completed in 2012.
The Company intends to continue to evaluate and review project geophysical logs and
other data associated with the project to evaluate the possibility of future alternatives
including updates to resource estimates and project economics.
The Aladdin Project (100% interest) – Wyoming, USA
The Aladdin Project is comprised of private leases that cover approximately 5,166 acres
of surface rights and 4,618 acres of net 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 Project is 80
miles northwest of the Dewey Burdock Project. Uranium resources at the Aladdin Project
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 Project, 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 Project
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.
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% -
16
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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.
The Company is currently evaluating the Aladdin Project in order to determine how to
maximize the value that can be extracted from this project.
Kyzyl Ompul Project (70% interest) – Kyrgyz Republic
The uranium deposit/prospects of the Kyzyl Ompul Project are located in the Kyrgyz
Republic, approximately 125 kilometers east of the capital of Bishkek. The Kyzyl Ompul
Project is 100% owned and operated by UrAsia in Kyrgyzstan Limited Liability Company
(“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.
From July 31, 2017, to its termination on April 16, 2018, UrAsia was party to an earn-in
agreement (the “Earn-In Agreement”) with Mining Investment Company Alliance
(“Alliance”). The Earn-In Agreement provided Alliance with an earn-in option to acquire
a 100% interest in the Kyzyl Ompul Project in exchange for $6,000,000 of cash payments
and a two percent net smelter royalty of up to $5,000,000 as well as Alliance making
$1,600,000 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.
On April 16, 2018, UrAsia executed a replacement earn-in agreement (the “Replacement
Agreement”) with Central Asian Uranium Company Limited Liability Company
(“Central”) to replace the Earn-in Agreement, which was terminated in accordance with
the terms provided for therein. The Replacement Agreement provides Central with an
option to earn a 100% interest in the Kyzyl Ompul Project in exchange for $5,850,000 in
cash payments and a commitment to fund $1,500,000 of exploration and development
expenditures through December 1, 2020.
17
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
Under the terms of the Replacement Agreement, Central made cash payments to the
Company of $290,000 during the year ended December 31, 2018. In March 2019, the
Company and Central amended the Replacement Agreement such that the remaining cash
payments of $5,560,000 are now payable as follows: $130,000 on signing, of which
$70,000 has been received and $60,000 is expected to be received imminently, $95,104
on April 30, 2019, $16,828 per month from April 1 to September 1, 2019, $245,828 per
month from October 1 to December 1, 2019, $378,911 from January 1 to September 1,
2020, and $362,082 per month from October 1 to December 1, 2020. Cash payments
received from Central over the course of the Replacement Agreement are not refundable
if Central does not exercise its purchase option.
Aggregate exploration and development expenditures are expected to be incurred as
follows: $400,000 by December 31, 2018, $1,000,000 by December 31, 2019 and
$1,500,000 by December 1, 2020. For the year ended December 31, 2018, Central has
exceeded the minimum exploration and development expenditures required pursuant to
the Replacement Agreement.
Subject to Central completing all required funding and exercising its option to acquire a
100% interest in the Kyzyl Ompul Project, UrAsia will retain a 2% net smelter return
royalty that is payable on commencement of commercial production and is subject to a
minimum of $2,500,000 and a maximum of $5,000,000.
If Central fails to make any of the payments under the Replacement Agreement, UrAsia
will retain its 100% interest in the Kyzyl Ompul Project.
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.
The Company expects to minimize activities on the Kyzyl Ompul Project due to the
execution of the Replacement Agreement.
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.
18
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
SELECTED ANNUAL INFORMATION
Year
Ended
December
31, 2018
Year
Ended
December
31, 2017
Year
Ended
December
31, 2016
Statement of Loss:
Net revenues
Net loss
Net loss per share
Financial Position:
Total assets
Long term liabilities
Dividends
$Nil
$2,408,725
$0.02
$Nil
$5,280,632
$0.07
$Nil
$3,112,945
$0.05
$47,304,353 $33,695,520 $39,473,305
$6,229,824
$4,854,886
$Nil
$Nil
$7,365,390
$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.
RESULTS OF OPERATIONS – YEAR ENDED DECEMBER 31, 2018
The consolidated net loss for the year ended December 31, 2018 was $2,408,725
compared to $5,280,632 in the prior year.
The significant changes between the current year and the comparative year are discussed
below:
Administrative expenses totaled $2,145,295 for the year ended December 31, 2018
compared to $1,659,228 in the prior year. The overall increase in administrative
expenses relates primarily to increased consulting and professional fees and corporate
administration expenses incurred subsequent to completion of the URZ Energy
acquisition and the OTCQB Venture Market listing as well as the increased share-based
compensation.
Finance costs totaled $154,913 for the year ended December 31, 2018 compared to
$216,478 in the prior year and primarily related to interest expense on the Shareholders’
Loan. The decrease in interest expense related to the settlement of the Shareholders’
Loan in July 2018.
The Company recognized an unrealized gain of $51,789 for the year ended December 31,
2018 compared to $595,801 in the prior year. The unrealized gain related primarily to
the gain on the revaluation of the warrant liability for both periods.
19
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
The Company recognized a realized gain of $34,485 for the year ended December 31,
2018 compared to a realized loss of $3,938 in the prior year. The realized gain in the
current year relates to the settlement of trade and other payables whereas the realized
loss in the prior year relates primarily to the loss on sale of certain investments.
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 it’s carrying value, the carrying value was impaired.
SUMMARY OF QUARTERLY RESULTS
The following tables provide selected quarterly financial information for the most recent
eight quarters.
3 Months
Ended
December 31,
2018
3 Months
Ended
September
30, 2018
3 Months
Ended
June 30,
2018
3 Months
Ended
March 31,
2018
Total revenues
$Nil
$Nil
$Nil
$Nil
Net loss
$(986,839)
$(557,452)
$(238,442)
$(625,992)
Net loss per share, basic
and diluted
$(0.01)
$(0.00)
$(0.00)
$(0.01)
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)
The net loss in the three months ended September 30, 2017 included a $6.3 million
impairment of exploration and evaluation assets related to Kyzyl Ompul Project.
20
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
Fourth Quarter 2018
The Company began the fourth quarter with a cash balance of $940,048. During the
fourth quarter, the Company expended $373,430 on operating activities net of working
capital changes, $158,725 on investing activities, and $55,000 on financing activities, with
a negative $892 effect of foreign exchange on cash to end the quarter and the year with a
cash balance of $352,001.
LIQUIDITY AND CAPITAL RESOURCES
The Company began the fiscal year with a cash balance of $432,192. During the year
ended December 31, 2018, the Company expended $1,834,175 on operating activities net
of working capital changes, expended $639,673 on investing activities, and received
$2,394,444 from financing activities, with a negative $787 effect of foreign exchange on
cash to end December 31, 2018 with a cash balance of $352,001.
In January 2018, the Company closed the second and final tranche of its non-brokered
private placement of $157,366 (C$195,000) through the issuance of 780,000 units at a
price of C$0.25 per unit.
During the year ended December 31, 2018, the Company issued 11,950,866 common
shares for gross proceeds of $1,827,078 pursuant to the exercise of share purchase
warrants.
In May 2018, URZ Energy advanced $465,000 to the Company. All principal and interest
was settled on completion of the acquisition. In July 2018, the Company acquired net
cash of $423,924 on the acquisition of URZ Energy.
During the year ended December 31, 2018, the Company issued 11,269,243 common
shares as full and final settlement of the Shareholders’ Loan.
In March 2019, the Company closed a non-brokered private placement for gross proceeds
of C$3,014,391 through the issuance of 13,106,046 units at a price of C$0.23 per unit.
Under the terms of the Replacement Agreement, Central made cash payments to the
Company of $290,000 during the year ended December 31, 2018. In March 2019, the
Company and Central amended the Replacement Agreement such that the remaining cash
payments of $5,560,000 are now payable as follows: $130,000 on signing, of which
$70,000 has been received and $60,000 is expected to be received imminently, $95,104
on April 30, 2019, $16,828 per month from April 1 to September 1, 2019, $245,828 per
month from October 1 to December 1, 2019, $378,911 from January 1 to September 1,
2020, and $362,082 per month from October 1 to December 1, 2020. Cash payments
received from Central over the course of the Replacement Agreement are not refundable
if Central does not exercise its purchase option.
21
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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.
At the date of this MD&A, the Company has 17,380,339 exercisable warrants outstanding
at exercise prices ranging from C$0.35 to C$.375, and 12,785,836 exercisable stock
options outstanding at exercise prices ranging from C$0.075 to C$1.50, that if exercised
will raise additional capital for the Company.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Annual license payments *
Centennial option
agreement **
Dewey Burdock option
agreements
Office leases
Within 1 year
2-4 years
Over 4 years
Total
$
676,386
$
674,793
$
1,326,198
$
2,677,377
3,165,000
-
-
3,165,000
62,500
187,500
1,768,750
2,018,750
54,431
3,958,317
$
104,203
966,496
$
20,874
3,115,822
$
179,508
8,040,635
$
* annual license payments include lease, mineral claim, and exploration license payments
** the Company will use best efforts to renegotiate the Centennial Project option
agreement before the contingent payment is due
22
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial Instruments
Financial instruments are classified into one of the following categories: fair value
through profit or loss; fair value through other comprehensive income (loss); or, at
amortized cost. The carrying values of the Company’s financial instruments are classified
into the following categories:
Financial assets
Amortized cost
Cash
Restricted cash
Reclamation bonds
Financial liabilities
Amortized cost
Trade and other payables
Loans payable
Decommissioning liabilities
Fair value through profit or loss
Fair value through profit or loss
Warrant liabilities
Fair value
As at December 31,
2018
2017
$
$
352,001
39,963
99,000
490,964
432,192
39,176
-
471,368
$
$
As at December 31,
2018
2017
$
1,452,085
-
223,442
$
1,525,906
2,104,678
142,918
$
247,654
1,923,181
$
258,116
4,031,618
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.
23
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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 warrant liabilities is recorded at fair value using Level 3
of the fair value hierarchy. The carrying value of warrant liabilities is determined using
the Black-Scholes option pricing model.
The carrying values of cash, trade and other payables, and loans payable approximate
their fair values because of the short-term nature of these financial instruments and are
classified as financial assets and liabilities at amortized cost and are reported at
amortized cost.
The carrying values of restricted cash, reclamation bonds and decommissioning liabilities
approximate their fair values and are classified as financial assets and liabilities at
amortized cost and are reported at amortized cost.
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, 2018, 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:
24
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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.
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, the Company prepares annual expenditure
25
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
budgets that are updated as necessary depending on various factors, including capital
deployment, progress on permitting, results from the exploration and development of its
properties and general industry conditions. The annual and updated budgets are
approved by the Board of Directors.
The Company’s current and expected remaining contractual maturities for its financial
liabilities with agreed repayment periods are presented below. The table includes the
undiscounted cash flows of financial liabilities based on the earliest date on which the
Company can be required to satisfy the liabilities.
As at December 31, 2018
1-3 months
3 months -
1 year
1-5 years
Total
Trade and other payables
$
$
1,257,085
1,257,085
$
$
45,000
45,000
$
$
150,000
150,000
$
$
1,452,085
1,452,085
RELATED PARTY TRANSACTIONS
Related party transactions
During the years ended December 31, 2018 and 2017, the Company had related party
transactions with directors, management and shareholders including:
Interest accruing of $143,219 and $209,670, respectively to certain shareholders
of the Company on the Shareholders’ Loan;
The issuance of 11,269,243 common shares valued at $2,201,024 in full and final
settlement of the Shareholders’ Loan;
The issuance of 186,512 common shares to a shareholder of the Company to settle
of trade and other payables of $36,169;
The issuance of 578,822 common shares to a director of the Company to settle
trade and other payables of 187,500; and
The issuance of 450,000 and 750,000 common shares, respectively, to executive
management of the Company to settle employee remuneration.
26
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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, consisted of the following:
Related party liabilities
Included in trade and other payables as at December 31, 2018 and 2017 is $326,422 and
$716,838, respectively, owing to related parties of the Company, of which $230,000 and
$325,500, respectively, is owed to a former director of the Company. On February 14,
2018, the Company entered into an amended severance agreement with this director to
pay the remaining severance payments over 49 months, whereby the amount payable
was increased to $370,000, of which $140,000 was paid during the year ended December
31, 2018. The Company has classified $80,000 as current and $150,000 as non-current
as at December 31, 2018. In June 2018, the Company settled other deferred
compensation of $187,500 with this same former director through the issuance of
578,822 common shares of the Company.
27
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
OUTSTANDING SHARE DATA AS AT THE DATE OF THIS MD&A
The Company has authorized the issuance of an unlimited number of common and
preferred shares with no par value. As at December 31, 2018 and through the date of this
MD&A, the following common shares, share purchase warrants and stock options are
issued and outstanding:
Common
Shares
Share Purchase
Warrants
Stock
Options
Balance, December 31, 2018
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
169,833,806
298,310
76,247
10,827,317
-
-
12,785,836
-
-
13,106,046
6,553,022
-
183,314,409
17,380,339
12,785,836
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
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.
Indicators of impairment of exploration and evaluation assets
In accordance with the Company’s accounting policy for its exploration and evaluation
assets, expenditures on its uranium properties are capitalized. There is no certainty that
the expenditures made by the Company in the exploration of its property interests will
result in discoveries of commercial quantities of uranium. The Company applies
28
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
judgment to determine whether indicators of impairment exist for these capitalized
costs.
Management uses several criteria in making this assessment, including the period for
which the Company has the right to explore, expected renewals of exploration rights,
whether substantive expenditures on further exploration and evaluation of its properties
are budgeted, and evaluation of the results of exploration and evaluation activities up to
the reporting date.
Carrying value of exploration and evaluation assets
If any indicators of impairment are noted then management reviews the carrying value
of the Company’s exploration and evaluation assets to determine whether an impairment
charge should be recorded on any of its projects. Management determines the
recoverable amount of its individual exploration and evaluation assets using the higher
of fair value less costs to sell or value-in-use. This determination and the individual
assumptions require that management decide whether impairment should be recorded
based on the best available information at each reporting period. Changes in these
assumptions may alter the results of impairment testing, impairment charges recognized
in profit or loss and the resulting carrying amounts of assets.
During the year ended December 31, 2018, impairment indicators were noted on the
Company’s Centennial project; however, the Company did not record an impairment
charge as the fair value was determined to be in excess of its carrying value.
During the year ended December 31, 2017, the Company recorded an impairment charge
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 or acquired
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, scoping studies,
preliminary economic assessments, proximity of operating facilities, operating
management expertise and existing permits.
Determining if an acquisition is a business combination or an asset acquisition
As required by IFRS 3 Business Combinations (“IFRS 3”), the Company is required to
determine whether the acquisition of URZ Energy should be accounted for as a business
combination or an asset acquisition. Under IFRS 3, the components of a business must
include inputs, processes and outputs. Management has determined that URZ Energy did
not include all the necessary components of a business. Accordingly, the acquisition of
URZ Energy has been recorded as an acquisition of URZ’s net assets, consisting of URZ
Energy’s exploration and evaluation assets and working capital.
29
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
Identifying the acquirer in an acquisition
As required by IFRS 3 and IFRS 10 Consolidated Financial Statements, the Company is
required to determine whether it is the acquirer or acquiree in the URZ Energy
acquisition. The acquirer is the entity that obtains control of the acquiree in the
acquisition. If it is not clear which company is the acquirer, additional information must
be considered, such as the combined entity’s relative voting rights, existence of a large
minority voting interest, composition of the governing body and senior management, and
the terms behind the exchange of equity interests. Management has determined that
Azarga Uranium is the acquirer of URZ Energy.
Determination of asset and liability fair values
Business combinations and asset acquisitions require judgment and estimates to be made
at the date of acquisition in relation to determining asset and liability fair values. The
information necessary to measure the fair values as at the acquisition date of assets
acquired and liabilities assumed requires management make certain judgments and
estimates about future events, including but not limited to estimates of mineral resources
acquired, exploration potential, future operating costs and capital expenditures, future
metal prices, and long-term foreign exchange rates.
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, 2018. 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 3.20 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.
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
30
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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 filed or submitted under securities legislation is accumulated and communicated
to the Company’s management, including its CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure.
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,
2018, 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 CEO and CFO believe that the Company’s
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 CEO and CFO, 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 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
31
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
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, 2018.
There were no changes in the Company’s internal controls over financial reporting that
occurred during the year ended December 31, 2018, 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,
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
32
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2018
conditions and expected future developments, as well as other factors it believes are
appropriate in the circumstances.
Although Azarga Uranium believes such forward-looking
information and the
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 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.
33