Azarga Uranium Corp.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
(Expressed in U.S. Dollars)
Tel: 604-688-5421
Fax: 604-688-5132
www.bdo.ca
BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver, BC
V6C 3L2
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, 2019
and 2018 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, 2019 and 2018 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 $26,988,501. These events or conditions, along with other matters as set
forth in Note 1, indicate that material uncertainties exist 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.
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the
international BDO network of independent member firms.
Page 1 of 12
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 26, 2020
TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position
Consolidated Statements of Loss and Other Comprehensive Loss
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate information and going concern
2. Basis of presentation
3. Summary of significant accounting policies
4. Segmented information
5. Acquisition of URZ Energy
6. Exploration and evaluation assets
7. Loans payable
8. Decommissioning liabilities
9. Warrant liabilities
10. Equity
11. Share option reserve
12. Administrative expenses
13. Finance costs
14. Discontinued operations
15. Related party transactions and balances
16. Financial instruments and risk management
17. Capital risk management
18. Commitments
19. Supplemental cash flow information
20. Non-controlling interest
21. Deferred income tax
22. Subsequent events
Page
6
7
8
9
10
11
14
26
27
29
34
35
35
36
40
42
42
43
43
45
49
49
50
51
53
55
AZARGA URANIUM CORP.
Consolidated Statements of Financial Position
(Expressed in U.S. Dollars)
ASSETS
Current assets
Cash
Total current assets
Other assets
Non-current assets
Restricted cash
Exploration and evaluation assets
Property, plant and equipment
Right-of-use assets
Total non-current assets
Reclamation bonds
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables
Total current liabilities
Operating lease obligations
Non-current liabilities
Trade and other payables
Deferred income tax liabilities
Decommissioning liabilities
Operating lease obligations
Total non-current liabilities
Warrant liabilities
Total liabilities
Equity
Common shares
Contributed surplus
Share option reserve
Foreign currency translation reserve
Accumulated deficit
Equity attributable to the equity holders of the Company
Total equity
Non-controlling interest
Total liabilities and equity
Notes
2019
2018
As at December 31,
$
184,447
23,913
208,360
$
352,001
26,810
378,811
22,716
41,440,616
67,577
111,357
-
41,642,266
41,850,626
$
39,963
46,696,473
90,106
-
99,000
46,925,542
47,304,353
$
$
793,864
45,014
838,878
$
1,302,085
-
1,302,085
70,000
3,112,193
251,550
70,445
265,029
3,769,217
4,608,095
60,303,924
1,117,679
2,809,429
-
(26,988,501)
37,242,531
-
37,242,531
41,850,626
$
150,000
4,233,790
223,442
-
247,654
4,854,886
6,156,971
57,976,321
1,001,818
2,500,078
(863,092)
(18,973,266)
41,641,859
(494,477)
41,147,382
47,304,353
$
6
8
15
21
8
9
10
10
11
20
Corporate information and going concern
Approved by the Board of Directors of the Company:
1
“Joseph L. Havlin”, Director
“Matthew O’Kane”, Director
The accompanying notes are an integral part of these consolidated financial statements.
Page | 6
AZARGA URANIUM CORP.
Consolidated Statements of Loss and Other Comprehensive Loss
(Expressed in U.S. Dollars)
Administrative expenses
Foreign exchange loss
Loss from operations
Impairment of exploration and evaluation assets
Finance costs
Gain on settlement of trade and other payables
Loss before income tax
Unrealized gain on warrant liabilities
Net loss from continuing operations
Deferred income tax recovery (expense)
Net loss
Net loss from discontinued operations
Net loss attributable to:
Equity holders of the Company
Net loss
Non-controlling interest
Basic and diluted loss per share
Notes
Year ended December 31,
2019
2018
12
6
13
10
9
21
14
20
$
(1,943,285)
(93,382)
(2,422,398)
(4,459,065)
(9,734)
-
371,983
(4,096,816)
122,000
(3,974,816)
(3,763,180)
(7,737,996)
$
(2,040,580)
(946)
-
(2,041,526)
(154,913)
34,485
51,789
(2,110,165)
(181,000)
(2,291,165)
(117,560)
(2,408,725)
(7,464,073)
(273,923)
(7,737,996)
$
(2,379,290)
(29,435)
(2,408,725)
$
Basic and diluted loss per share from continuing operations
Basic and diluted loss per share from discontinued operations
Weighted average number of common shares outstanding
Basic and diluted loss per share
Net loss
Other comprehensive income (loss)
Item that may be reclassified subsequently as profit or loss
Total other comprehensive loss
Foreign currency translation adjustment
Other comprehensive income (loss) attributable to:
$
$
$
(0.02)
(0.02)
(0.04)
$
$
$
(0.02)
(0.00)
(0.02)
181,477,536
125,183,747
$
(7,737,996)
$
(2,408,725)
1,080,330
(6,657,666)
$
(50,154)
(2,458,879)
$
Equity holders of the Company
Other comprehensive income (loss)
Non-controlling interest
20
1,065,341
14,989
1,080,330
$
(35,108)
(15,046)
(50,154)
$
The accompanying notes are an integral part of these consolidated financial statements.
Page | 7
AZARGA URANIUM CORP.
Consolidated Statements of Changes in Equity
(Expressed in U.S. Dollars)
Attributable to equity holders of the Company
Number of
shares
Common
shares
Contributed
surplus
Share option
reserve
Foreign currency
translation
reserve
Accumulated
deficit
Total equity
Non-controlling
interest
Total equity
Balances, December 31, 2018
Issuance of shares for private placement
Issuance of shares to settle employee
remuneration
Issuance of shares to settle ESPP
Issuance of shares to settle DSA
Compensation to be settled by equity
Share-based compensation
NCI adjustment on acquisition of 23.1% of UrAsia
Net loss for the year
Balances, December 31, 2019
Other comprehensive income for the year
169,833,806
13,106,046
$
57,976,321
1,871,110
900,000
1,380,521
323,553
-
-
-
-
-
170,068
231,424
55,001
-
-
-
-
-
185,543,926
$
60,303,924
$
1,001,818
$
2,500,078
$
(863,092)
$
(18,973,266)
-
(170,068)
(231,424)
(55,001)
572,354
-
-
-
-
-
-
-
-
-
309,351
-
-
-
-
-
-
-
-
-
(202,249)
-
1,065,341
$
2,809,429
Attributable to equity holders of the Company
$
-
1,117,679
$
-
-
-
-
-
-
(551,162)
(7,464,073)
-
$
(26,988,501)
$
41,641,859
1,871,110
-
-
-
572,354
309,351
(753,411)
(7,464,073)
1,065,341
37,242,531
$
$
(494,477)
-
-
-
-
-
-
753,411
(273,923)
14,989
$
-
$
41,147,382
1,871,110
-
-
-
572,354
309,351
-
(7,737,996)
1,080,330
37,242,531
$
Number of
shares
Common
shares
Contributed
surplus
Share option
reserve
Foreign currency
translation
reserve
Accumulated
deficit
Total equity
Non-controlling
interest
Total equity
Balances, December 31, 2017
Acquisition of URZ Energy
Issuance of shares to settle Shareholders' Loan
Issuance of shares for private placements
Issuance of shares on exercise of warrants
Issuance of shares for repurchase of royalties
Issuance of shares to settle trade and other
payables
Issuance of shares to settle employee
remuneration
Issuance of shares to settle ESPP
Issuance of shares to settle DSA
Issuance of warrants
Compensation to be settled by equity
Share-based compensation
Net loss for the year
Balances, December 31, 2018
Other comprehensive loss for the year
83,619,850
58,107,109
11,269,243
780,000
11,950,866
104,166
$
41,286,853
11,273,920
2,201,024
140,804
2,347,295
19,391
2,033,334
391,014
550,000
1,115,301
303,937
-
-
-
-
-
93,500
215,344
58,669
(51,493)
-
-
-
-
$
768,652
686,314
$
1,427,563
769,169
-
-
(520,217)
-
-
(93,500)
(215,344)
(58,669)
-
434,582
-
-
-
-
-
-
-
-
-
-
-
-
-
303,346
-
-
169,833,806
$
57,976,321
$
1,001,818
$
2,500,078
$
(827,984)
$
(16,593,976)
-
-
-
-
-
-
-
-
-
-
-
-
-
(35,108)
(863,092)
$
-
-
-
-
-
-
-
-
-
-
-
-
(2,379,290)
-
$
(18,973,266)
$
26,061,108
12,729,403
2,201,024
140,804
1,827,078
19,391
391,014
-
-
-
(51,493)
434,582
303,346
(2,379,290)
(35,108)
41,641,859
$
$
(449,996)
-
-
-
-
-
-
-
-
-
-
-
-
(29,435)
(15,046)
(494,477)
$
$
25,611,112
12,729,403
2,201,024
140,804
1,827,078
19,391
391,014
-
-
-
(51,493)
434,582
303,346
(2,408,725)
(50,154)
41,147,382
$
The accompanying notes are an integral part of these consolidated financial statements.
Page | 8
AZARGA URANIUM CORP.
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
OPERATING ACTIVITIES
Net loss from continuing operations
Adjustments for:
Depreciation
Share-based compensation
Impairment of exploration and evaluation assets
Gain on settlement of trade and other payables
Unrealized gain on warrant liabilities
Deferred income tax expense (recovery)
Equity compensation expense
Finance costs
Unrealized foreign exchange (gain) loss
Operating cash flows before changes in non-cash working capital items
Change in other assets
Change in trade and other payables
Net cash used in operating activities of continuing operations
Net cash used in operating activities of discontinued operations
INVESTING ACTIVITIES
Cash received on acquisition of URZ Energy, net of transaction costs
Expenditures on exploration and evaluation assets
Recoveries of expenditures on exploration and evaluation assets
Sale of property, plant and equipment
Net cash used in investing activities of continuing operations
Reclamation bonds
Net cash generated by financing activities of discontinued
operations
Notes
Year ended December 31,
2019
2018
$
(3,974,816)
$
(2,291,165)
11
6
10
9
21
10
13
5
6
6
8
44,560
252,790
2,422,398
-
(371,983)
(122,000)
572,354
9,734
12,277
(1,154,686)
2,897
(296,541)
(1,448,330)
(41,176)
-
(1,316,974)
2,000
1,126
99,000
(1,214,848)
2,696
266,044
-
(34,485)
(51,789)
181,000
434,582
154,913
(75,398)
(1,413,602)
145,542
(465,357)
(1,733,417)
(117,560)
423,924
(1,304,967)
-
-
(2,000)
(883,043)
FINANCING ACTIVITIES
99,700
260,172
10
Proceeds from issuance of common shares
10
Share issue costs
Loan proceeds received
7
Net cash generated by financing activities of continuing operations
Payment of other loans payable
7
Net cash generated by financing activities of discontinued
operations
Decrease in cash from continuing operations
Effect of foreign exchange rate changes on cash
Increase in cash from discontinued operations
Cash, beginning of year
Cash, end of year
2,266,169
(16,553)
-
-
2,249,616
191,409
(3,925)
(417,487)
249,933
352,001
1,984,444
-
515,000
(105,000)
2,394,444
-
(787)
(222,803)
142,612
432,192
Supplemental cash flow information, see Note 19
$
184,447
$
352,001
The accompanying notes are an integral part of these consolidated financial statements.
Page | 9
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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”)
with a primary focus of developing in-situ recovery uranium projects. The Company’s Dewey
Burdock Project, located in South Dakota, USA, is the Company’s initial development priority.
The Company also owns uranium projects in Wyoming, Colorado, and Utah. Until sold in
October 2019, the Company also held an interest in a project in the Kyrgyz Republic, see Note
6.
The Company’s corporate and registered and records office address is Unit 1 – 15782 Marine
Drive, White Rock, BC, V4B 1E6.
These consolidated financial statements have been prepared on a going concern basis, which
contemplates that the Company will continue operations for the foreseeable future and will
be able to realize its assets and discharge its liabilities in the normal course of business as
they fall due. To date, the Company has not generated revenues from operations and is
currently in the exploration and development stage. As at December 31, 2019, the Company
had a working capital deficit of $630,518 and an accumulated deficit of $26,988,501 and will
continue incurring losses for the foreseeable future. Additional funding will be required by
the Company to complete its strategic objectives and continue as a going concern. There is no
certainty that additional financing, at terms that are acceptable to the Company, will be
available. Further, at present, the COVID-19 pandemic is negatively impacting financial
markets globally and this may adversely affect the Company’s ability to raise capital for future
operations and exploration and development of the Company’s mineral properties. 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 material uncertainties cast significant doubt on the Company’s
ability to continue as a going concern.
These consolidated financial statements do not reflect adjustments that would be necessary
if the going concern assumption were not appropriate.
Page | 10
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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, 2019 were
approved and authorized for issue by the Company’s Board of Directors on March 26, 2020.
Basis of presentation
2.2
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 16.
Presentation currency
2.3
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.
Significant accounting judgments and estimates
2.4
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.
Page | 11
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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, 2019, the Company recorded an impairment charge of
$4,140,444 on its Kyzyl Ompul project in Kyrgyzstan and an impairment charge of $2,422,398
on its Centennial project in Colorado, see Note 6.
Page | 12
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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
Business Combinations
As required by IFRS 3
(“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 5. 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 Energy’s net assets, consisting
principally of exploration and evaluation assets and working capital.
Identifying the acquirer in an acquisition
Consolidated Financial Statements
, the Company is
As required by IFRS 3 and IFRS 10
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.
Page | 13
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1
Basis of consolidation
The consolidated financial statements include the financial statements of Azarga Uranium
and its controlled subsidiaries.
Name of subsidiary
Powertech (USA) Inc.
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
Place of
incorporation
Ownership
interest
at December
31, 2019
USA
USA
Kyrgyz
Republic
Canada
BVI
Hong Kong
100%
100%
0%
100%
100%
100%
Principal activity
Operating uranium
exploration company
Operating uranium
exploration company
Operating uranium
exploration company
Holding company
Holding company
Holding company
Canada
100%
Holding company
USA
100%
Holding company
* acquired in July 2018, see Note 5
** sold in October 2019, 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.
Page | 14
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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.
Page | 15
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.3
Restricted cash
Restricted cash consists of deposits held for collateral pursuant to bonds provided to state
authorities in connection with exploration and evaluation property activities. The Company
makes such cash deposits for restoration provisions related to rehabilitation obligations.
Property, plant and equipment
3.4
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
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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.
Exploration and evaluation assets
3.5
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
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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.
Taxation
3.7
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, 2019 and 2018.
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
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
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.
Financial Instruments
3.8
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
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.8
Financial Instruments (Continued)
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.
Derivative financial instruments
3.9
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.
Page | 21
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.9
Derivative financial instruments (Continued)
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.
Impairment of financial assets
3.10
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.
Impairment of non-financial assets
3.11
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.
Page | 22
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.11
Impairment of non-financial assets (Continued)
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.
Derecognition of financial assets and financial liabilities
3.12
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.
Share purchase warrants
3.14
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.
Page | 23
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
Page | 24
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
3.19 Adoption of new standards, interpretations and amendments
Leases
The Company adopted the requirements of IFRS 16 –
(“IFRS 16”) as of 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 leased asset. For
assets that meet the definition of a lease, IFRS 16 requires a single, on-balance sheet
accounting model similar to finance lease accounting, with exceptions for short-term leases,
leases of low value assets, and mineral exploration leases. Accordingly, IFRS 16 applies only
to the Company’s office leases. The Company has applied the modified retrospective
approach in adopting IFRS 16.
On January 1, 2019 the Company recorded right-of-use assets totaling $152,214 with a
corresponding entry to operating lease obligations. The Company calculated the present
value of the minimum lease payments using an incremental borrowing rate of 7% and an
exchange rate of $/C$ 1.3642. Thereafter, the right-of-use assets are depreciated on a
straight-line basis over the term of the leases, which range from 2 to 5 years.
During the year ended December 31, 2019, the Company recorded interest expense of $9,734,
accretion of $46,489, and depreciation of $40,857.
Standards issued but not yet effective
3.20
A number of new standards, amendments to standards and interpretations are not yet
effective as of December 31, 2019 and have not been applied in preparing these consolidated
financial statements. These standards are not expected to materially impact the Company’s
financial position or results of operations.
Page | 25
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
4.
SEGMENTED INFORMATION
The Company had 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:
Kyrgyzstan
Uranium
Division *
United States
Uranium
Division
Unallocated
**
Consolidated
Total
Segment assets
As at December 31, 2019
As at December 31, 2018
Segment liabilities
$
$
41,614,854
42,730,212
$
-
$
4,389,464
$
$
235,772
184,677
$
$
41,850,626
47,304,353
As at December 31, 2019
As at December 31, 2018
Exploration and evaluation assets (Note 6)
$
$
3,529,037
3,589,458
$
-
$
1,633,878
$
$
1,079,058
933,635
$
$
4,608,095
6,156,971
As at December 31, 2019
As at December 31, 2018
Net loss before income tax
$
$
41,440,616
42,471,383
$
-
$
4,225,090
$
-
$
-
$
$
41,440,616
46,696,473
Year ended December 31, 2019
Year ended December 31, 2018
$
$
(2,625,178)
(443,236)
$
$
(3,763,180)
(117,560)
$
$
(1,471,638)
(1,666,929)
$
$
(7,859,996)
(2,227,725)
Impairment of exploration and evaluation assets (Note 6)
Year ended December 31, 2019
Year ended December 31, 2018
(2,422,398)
$
$
-
(4,140,444)
$
$
-
$
-
$
-
(6,562,842)
$
$
-
* the Company sold the Kyrgyzstan Uranium Division in October 2019, See Note 6.
** the unallocated amount contains all amounts associated with the corporate
division.
Page | 26
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
5.
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.
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 6, at
acquisition, Ucolo held certain uranium projects located in Wyoming, Colorado and Utah.
Page | 27
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
5.
ACQUISITION OF URZ ENERGY (Continued)
Consideration
Shares issued
Warrants issued
Options issued
Transaction costs - shares
Transaction costs - cash
Due from Azarga Uranium *
Total
Net assets received
Cash
Other assets
Exploration and evaluation assets
Property, plant and equipment
Reclamation bonds
Trade and other payables
Decommissioning liabilities
Total
$
$
11,237,756
686,314
769,169
36,164
146,601
(468,567)
12,407,437
$
570,525
49,192
12,167,005
2,894
97,000
(417,035)
(62,144)
12,407,437
$
* In May 2018, URZ Energy advanced $465,000 to the Company, see Note 7.2. The loan
accrued interest at 5% through completion of the acquisition. All principal and interest was
settled on completion of the acquisition.
Page | 28
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
6.
EXPLORATION AND EVALUATION ASSETS
South
Dakota
Dewey
Burdock
Gas Hills
Wyoming
Juniper
Ridge
Colorado
Utah
Other
Centennial
JB
Ticaboo
Kyrgyz
Republic
Kyzyl
Ompul
Total
Balance, December 31, 2018
Salaries and consulting
License fees
Decommissioning liabilities
Share-based compensation
Depreciation
Option payments received
Recoveries
Currency translation effect
Impairment
Balance, December 31, 2019
$
26,908,029
468,525
342,758
-
31,676
-
-
-
-
-
$
27,750,988
South
Dakota
Dewey
Burdock
$
$
$
8,634,378
78,819
104,756
12,308
2,180
-
-
-
-
-
$
2,747,392
50,743
23,370
-
872
-
-
-
-
-
$
911,128
43,504
140,762
-
2,617
-
-
-
-
-
$
2,379,738
21,000
6,000
11,607
4,053
-
-
-
-
(2,422,398)
$
8,832,441
$
2,822,377
$
1,098,011
$
-
427,716
7,000
11,006
-
872
-
-
-
-
-
446,594
$
$
463,002
12,833
5,898
8,292
2,180
-
-
(2,000)
-
-
490,205
Gas Hills
Wyoming
Juniper
Ridge
Colorado
Utah
Other
Centennial
JB
Ticaboo
Balance, December 31, 2017
Acquisition of URZ Energy
Acquisition costs
Salaries and consulting
License fees
Decommissioning liabilities
Share-based compensation
Depreciation
Repurchase of royalties
Option payments received
Recoveries
Currency translation effect
Balance, December 31, 2018
$
25,909,535
$
-
$
-
-
31,250
652,800
276,072
-
18,981
-
19,391
-
-
-
8,512,595
2,724,761
-
21,097
97,525
1,806
1,355
-
-
-
-
-
-
1,580
20,509
-
542
-
-
-
-
-
$
26,908,029
$
8,634,378
$
2,747,392
$
$
692,775
63,645
-
25,427
127,653
-
1,628
-
-
-
-
-
911,128
$
2,332,215
-
-
28,000
2,530
14,281
2,712
-
-
-
-
-
$
2,379,738
-
$
415,467
-
1,400
10,307
-
542
-
-
-
-
-
427,716
$
-
$
450,537
-
3,500
5,317
2,293
1,355
-
-
-
-
-
463,002
$
$
4,225,090
17,940
67,810
-
12,111
2,943
(130,000)
(25,779)
(29,671)
(4,140,444)
$
-
Kyrgyz
Republic
Kyzyl
Ompul
$
4,069,145
-
-
46,409
468,918
-
10,187
5,930
-
(290,000)
(68,697)
(16,802)
4,225,090
$
$
46,696,473
700,364
702,360
32,207
56,561
2,943
(130,000)
(27,779)
(29,671)
(6,562,842)
41,440,616
Total
$
$
33,003,670
12,167,005
31,250
780,213
1,008,831
18,380
37,302
5,930
19,391
(290,000)
(68,697)
(16,802)
46,696,473
$
Page | 29
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
6.
EXPLORATION AND EVALUATION ASSETS (Continued)
6.1
Dewey Burdock Project, South Dakota
The Dewey Burdock Uranium Project is an in-situ recovery uranium project located in the
Edgemont uranium district in South Dakota. The Dewey Burdock Uranium Project is the
Company’s initial development priority.
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 18.
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 18.
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, see Note 10.2.
Page | 30
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
6.
EXPLORATION AND EVALUATION ASSETS (Continued)
6.2
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. Pursuant to the agreement, the contingent payments are
payable upon receipt of regulatory permits and licenses allowing uranium production on the
area of the Centennial Project pertaining to these uranium interests. Further, unless
otherwise agreed, if the Company does not obtain such permits and licenses by September
27, 2019, the uranium rights, at the option of the seller, can be transferred back to the seller.
To date, the Company has neither obtained the required regulatory permits and licenses nor
has the Company been able to renegotiate the option agreement. However, the Company is
attempting to renegotiate the option agreement and the seller has not exercised its option to
have the uranium rights transferred back.
As a result of the uncertainty surrounding this option agreement, which represents 5,760 of
the 6,238 mineral acres at the Centennial Project, significant doubt over the future
recoverability of the carrying value exists. Accordingly, during the year ended December 31,
2019, the Company recognized an impairment charge of $2,422,398 for the Centennial
Project.
The Company has disclosed the contingent amount of $3,165,000 as a commitment in Note
18.
URZ Energy uranium projects
6.3
In July 2018, the Company acquired URZ Energy and the Gas Hills, Juniper Ridge and Shirley
Basin uranium projects in Wyoming, the JB uranium project in Colorado and the Ticaboo
uranium project in Utah, See Note 5.
Page | 31
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
6.
EXPLORATION AND EVALUATION ASSETS (Continued)
6.4
Kyzyl Ompul Project, Kyrgyz Republic
In October 2019, the Company sold its interest in UrAsia in Kyrgyzstan Limited Liability
Company (“UrAsia”) to Central Asian Uranium Company Limited Liability Company
(“Central”). UrAsia held a 100% interest in the Kyzyl Ompul Project.
In April 2018, as amended, UrAsia entered into an earn-in agreement (the “Earn-in
Agreement”) with Central pursuant to which Central had 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.
During the year ended December 31, 2019 and 2018, Central made cash payments of
$130,000 and $290,000, respectively, to the Company under the Earn-in Agreement.
In May 2019, the Kyrgyz Republic’s parliament voted to ban uranium exploration and mining
in the country. The Kyzyl Ompul Project exploration license was subsequently suspended
due to force majeure circumstances, among other reasons, resulting from the Kyrgyz
Republic government’s actions. The Company determined that these events in the Kyrgyz
Republic cast significant doubt over the future validity of the Company’s exploration license
on the Kyzyl Ompul Project as well as on the future cash flows expected under the Earn-in
Agreement. Accordingly, during the year ended December 31, 2019, the Company recognized
an impairment charge of $4,140,444 for the Kyzyl Ompul Project.
Page | 32
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
6.
EXPLORATION AND EVALUATION ASSETS (Continued)
6.4
Kyzyl Ompul Project, Kyrgyz Republic (Continued)
In October 2019, the Company sold its 93.1% interest in UrAsia for cash consideration of
$232,750. In addition, UrAsia granted the Company a 1.862% net smelter return royalty on
any future uranium production from the Kyzyl Ompul Project up to $4,655,000.
Consideration received
Cash *
NSR royalty **
Total
Net assets (liabilities) sold
Cash
Restricted cash
Exploration and evaluation assets ***
Property, plant and equipment
Trade and other payables
Total
Gain on sale of UrAsia
$
$
192,250
-
192,250
$
841
17,314
-
13,091
(338,169)
(306,923)
$
$
499,173
* the cash consideration has been grossed up to 100% and adjusted for the cash consideration
of $57,750 not received to date
** the Company did not assign a value to the 1.862% net smelter return royalty due to the
uncertainty over its realization.
*** As described above, the Company recognized a full impairment charge of the Kyzyl Ompul
Project prior to the sale of UrAsia. Accordingly, the net book value of exploration and
evaluation assets at the time of sale was $Nil.
Page | 33
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
7.
LOANS PAYABLE
7.1
Loan payable to shareholders
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 year ended
December 31, 2018, the Company recorded interest expense of $143,219.
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.
7.2 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.
7.3 Other loans payable
As at December 31, 2017, the Company had other loans outstanding of $46,873. During the
year ended December 31, 2018, the Company received $50,000 from a third party and
recorded interest expense of $8,127 on other loans. During the year ended December 31,
2018, principal and interest totaling $105,000 was repaid in full.
Page | 34
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
8.
DECOMMISSIONING LIABILITIES
Year ended December 31,
2019
2018
Balance, beginning of year
Assumed on acquisition of URZ Energy
Additions
Accretion
Balance, end of year
$
$
223,442
-
-
28,108
251,550
142,918
62,144
1,281
17,099
223,442
$
$
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. These reclamation bonds, along with an additional $2,000
bond posted in 2018, were recorded on the consolidated statement of financial position as at
December 31, 2018, until surety bond financing was obtained in 2019.
9. WARRANT LIABILITIES
Year ended December 31,
2019
2018
Balance, beginning of year
Issuance of warrants - private placements
Un realized gain on revaluation
Currency translation effect
Balance, end of year
$
$
247,654
378,506
(371,983)
10,852
265,029
258,116
68,055
(51,789)
(26,728)
247,654
$
$
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.
Warrant liabilities were revalued as at December 31, 2019 and 2018 using the Black-Scholes
option pricing model with the following assumptions: a risk free interest rate of 1.68% (2018
– 1.85%); an expected volatility of 61.8% (2018 – 58.4%); an expected life of 1-3 years (2018
– 1-3 years); a forfeiture rate of zero (2018 – zero); an expected dividend of zero (2018 –
zero); and an exchange rate of 1.2988 (2018 – 1.3642).
Page | 35
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
10. EQUITY
10.1 Authorized share capital
The Company has authorized the issuance of an unlimited number of common and preferred
shares with no par value. As at December 31, 2019 and 2018, the Company had 185,543,926
and 169,833,806 common shares outstanding, respectively, and no preferred shares were
outstanding.
Issued share capital
10.2
During the year ended December 31, 2019, the Company completed the following equity
transactions:
•
In March 2019, the Company closed a non-brokered private placement for gross
proceeds of $2,266,169 (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 warrants were valued on a relative fair value basis at $378,506 using the Black-
Scholes option pricing model with the following assumptions: a risk-free interest rate
of 1.61%; an expected volatility of 63.4%; an expected life of 3 years; a forfeiture rate
of zero; an expected dividend of zero; and an exchange rate of $/C$ 1.3335.
The Company paid cash finder’s fees of $5,696 and other share issue costs of $10,857.
In July 2019, the Company issued 900,000 common shares to settle $170,068 of
outstanding employee remuneration. As a result, $170,068 was reclassified from
contributed surplus to share capital.
During the year ended December 31, 2019, the Company issued 1,380,521 common
shares to settle $231,424 owing pursuant to the Company’s employee share purchase
plan (“ESPP”) and 323,553 common shares to settle $55,001 owing pursuant to the
Company’s director services agreements (“DSA”).
•
•
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.
Page | 36
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
10. EQUITY (Continued)
10.2
Issued share capital (Continued)
•
•
•
•
•
•
•
•
•
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 6.
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 5. In addition, the Company issued
186,393 common shares valued at $36,164 for transaction costs.
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 7.1.
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 ESPP and 303,937
common shares to settle $58,669 owing pursuant to the Company’s DSA.
Page | 37
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
10. EQUITY (Continued)
10.3
Share purchase warrants
The continuity of share purchase warrants for the year ended December 31, 2019 is as
follows:
Expiry date
Balance,
December 31,
2019
Balance,
December 31,
2018
Exercise
price
C$
Exercised
Expired
Issued
June 19, 2019
September 23, 2019
July 27, 2020
December 22, 2020
March 20, 2022
$
$
$
$
$
0.375
0.35
0.36
0.35
0.31
2,304,184
4,621,665
2,333,968
1,567,500
-
10,827,317
-
-
-
-
6,553,022
6,553,022
-
-
-
-
-
-
(2,304,184)
(4,621,665)
-
-
-
(6,925,849)
-
-
2,333,968
1,567,500
6,553,022
10,454,490
Weighted average exercise price (C$)
$
0.36
$
0.31
$
-
$
0.36
$
0.33
The weighted average remaining contractual life is 1.67 years.
The continuity of share purchase warrants for the year ended December 31, 2018 is as
follows:
Expiry date
Balance,
December 31,
2017
Balance,
December 31,
2018
Exercise
price
C$
Exercised
Expired
Issued
September 23, 2019
July 27, 2020
December 22, 2020
August 15, 2018
June 19, 2019
$
$
$
$
$
0.35
0.36
0.35
0.20
0.375
4,621,665
1,833,968
677,500
-
-
7,133,133
-
500,000
890,000
14,806,700
2,304,184
18,500,884
-
-
-
-
-
-
(11,950,866)
(2,855,834)
-
-
(11,950,866)
(2,855,834)
4,621,665
2,333,968
1,567,500
-
2,304,184
10,827,317
Weighted average exercise price (C$)
$
0.35
$
0.23
$
0.20
$
0.20
$
0.36
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 C$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 | 38
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
10. EQUITY (Continued)
10.4 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, 2019 and 2018, Employee Contributions totaled $149,701
and $124,941, respectively, and Matching Contributions totaled $99,807 and $83,296,
respectively. As at December 31, 2019, a cumulative total of 5,062,690 common shares have
been issued pursuant to the ESPP. Subsequent to December 31, 2019, the Company issued
457,648 common shares pursuant to the ESPP, see Note 22.
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, 2019 and 2018, $55,001 and $56,277, respectively, were
expensed under the DSA. As at December 31, 2019, a cumulative total of 1,556,594 common
shares had been issued pursuant to the DSA. Subsequent to December 31, 2019, the Company
issued 87,543 common shares pursuant to the DSA, see Note 22.
Page | 39
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
11.
SHARE OPTION RESERVE
11.1
Stock option plan
In July 2018, the Company adopted a new rolling stock option plan, which permits the Board
of Directors of the Company to grant stock options for up to 10% of the outstanding common
shares of the Company. The exercise price of an option shall not be less than the discounted
market price at the time of granting as prescribed by the policies of the TSX. The maximum
term of the stock options is ten years from the grant date. Vesting terms are at the discretion
of the Board of Directors.
Stock option continuity
11.2
The continuity of stock options for the year ended December 31, 2019 is as follows:
Expiry date
Expired/
Forfeited
Exercised
Issued
Exercise
price
C$
Balance,
December 31,
2018
Balance,
December 31,
2019
October 27, 2019
May 19, 2020
May 19, 2021
May 16, 2022
August 22, 2023
May 23, 2024
March 14, 2027
$
$
$
$
$
$
$
1.20
0.335
0.36
0.32
0.24
0.23
0.075
393,336
1,015,000
1,165,000
2,040,000
3,692,500
-
-
-
-
-
-
2,395,000
4,480,000
12,785,836
-
2,395,000
-
-
-
-
-
-
-
-
(393,336)
(85,000)
(35,000)
(45,000)
-
-
-
(558,336)
-
930,000
1,130,000
1,995,000
3,692,500
2,395,000
4,480,000
14,622,500
Weighted average exercise price (C$)
$
0.24
$
0.23
$
-
$
0.94
$
0.21
As at December 31, 2019, 11,795,000 stock options were exercisable.
The weighted average remaining contractual life is 4.30 years.
Page | 40
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
11.
SHARE OPTION RESERVE (Continued)
11.2
Stock option continuity (Continued)
The continuity of stock options for the year ended December 31, 2018 is as follows:
Expiry date
Expired/
Forfeited
Exercised
Issued
Exercise
price
C$
Balance,
December 31,
2017
Balance,
December 31,
2018
April 30, 2018
August 6, 2018
November 3, 2018
November 3, 2018
October 27, 2019
May 19, 2020
May 19, 2021
May 16, 2022
March 14, 2027
August 22, 2023
$
$
$
$
$
$
$
$
$
$
1.20
0.35
1.20
1.50
1.20
0.335
0.36
0.32
0.075
0.24
165,163
1,000,000
15,513
54,750
393,336
1,030,000
1,185,000
2,060,000
-
-
5,903,762
-
-
-
-
-
-
-
-
4,480,000
3,692,500
8,172,500
-
-
-
-
-
-
-
-
-
-
-
(165,163)
(1,000,000)
(15,513)
(54,750)
-
(15,000)
(20,000)
(20,000)
-
-
(1,290,426)
-
-
-
-
393,336
1,015,000
1,165,000
2,040,000
4,480,000
3,692,500
12,785,836
11.3
Weighted average exercise price (C$)
Share-based compensation
$
0.43
$
0.15
$
-
$
0.52
$
0.24
During the years ended December 31, 2019 and 2018, the Company recognized share-based
compensation expense of $309,351 and $303,346, respectively, of which $252,790 and
$266,044, respectively has been allocated to administrative expenses and $56,561 and
$37,302, respectively has been allocated to exploration and evaluation assets.
In May 2019, the Company granted 2,395,000 stock options to officers, employees, directors
and other eligible persons at an exercise price of C$0.23 with an expiry date of May 23, 2024.
The weighted average fair value of the options granted was estimated at C$0.12 per option at
the grant date using the Black-Scholes option pricing model with the following assumptions:
a risk-free interest rate of 1.57%; an expected volatility of 62.6%; an expected life of 5 years;
a forfeiture rate of zero; an expected dividend of zero; and an exchange rate of 1.348.
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.
Page | 41
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
12. ADMINISTRATIVE EXPENSES
Year ended December 31,
2019
2018
Salaries and benefits
Consulting and professional fees
Corporate administration
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Share-based compensation
13.
FINANCE COSTS
$
$
932,070
394,747
319,118
3,703
40,857
252,790
1,943,285
929,232
399,197
443,411
2,696
-
266,044
2,040,580
$
$
Note
Year ended December 31,
2019
2018
Interest expense on operating lease
obligations
Interest expense on Shareholders' Loan
Interest expense on URZ Energy Loan
Interest expense on other loans payable
7.1
7.2
7.3
$
$
9,734
-
-
-
9,734
-
$
143,219
3,567
8,127
154,913
$
Page | 42
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
14. DISCONTINUED OPERATIONS
In October 2019, the Company sold its Kyzyl Ompul project located in Kyrgyzstan, see Note
6. The Company’s operations in Kyrgyzstan represented a separate geographical segment
and accordingly the Company has presented these operations as discontinued operations for
years ended December 31, 2019 and 2018.
Year ended December 31,
2019
2018
Administrative expenses
Foreign exchange loss
Reversal of deferred income tax liabilities on
impairment of exploration and evaluation assets
Impairment of exploration and evaluation assets
Gain on sale of UrAsia
Net loss from discontinued operations
$
41,176
1,080,330
$
104,715
12,845
(999,597)
4,140,444
(499,173)
3,763,180
$
-
-
-
117,560
$
15.
RELATED PARTY TRANSACTIONS AND BALANCES
15.1 Related party transactions
During the year ended December 31, 2019, the Company recorded related party transactions
with management including:
•
The issuance of 800,000 common shares to executive management of the Company
to settle employee remuneration, see Note 10.2.
During the year ended December 31, 2018, the Company recorded related party transactions
with directors, management and shareholders including:
•
•
•
•
•
Interest accruing to certain shareholders of the Company on the Shareholders’ Loan,
see Note 7.1;
The issuance of 11,269,243 common shares to settle the Shareholders’ Loan, see Note
7.1;
The issuance of 186,512 common shares to a shareholder of the Company to settle
trade and other payables, see Note 10.2;
The issuance of 578,822 common shares to a director of the Company to settle trade
and other payables, see Note 10.2; and
The issuance of 450,000 common shares to executive management of the Company
to settle employee remuneration, see Note 10.2.
Page | 43
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
15.
RELATED PARTY TRANSACTIONS AND BALANCES (Continued)
15.2 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:
Year ended December 31,
2019
2018
Salaries and benefits *
Consulting and professional fees
Share-based compensation
$
$
837,365
161,881
207,595
1,206,841
841,476
139,926
200,791
1,182,193
$
$
* Salaries and benefits are included in administrative expenses (Note 12) and exploration and
evaluation assets (Note 6).
15.3 Related party liabilities
As at December 31,
2019
2018
Trade and other payables - current
Trade and other payables - non-current
$
$
276,042
70,000
346,042
176,422
150,000
326,422
$
$
Included in trade and other payables as at December 31, 2019 and 2018 is $346,042 and
$326,422, respectively, owing to related parties of the Company, of which $170,000 and
$230,000, 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. During the year ended December 31, 2019 and 2018, the Company paid the
former director $60,000 and $140,000, respectively, towards the outstanding balance. The
Company has classified $100,000 as current and $70,000 as non-current as at December 31,
2019 and $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 10.2.
Page | 44
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
16.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
16.1 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:
As at December 31,
Financial assets
Amortized cost
Cash
Restricted cash
Reclamation bonds
Financial liabilities
Amortized cost
2019
2018
$
$
$
184,447
22,716
-
207,163
As at December 31,
$
352,001
39,963
99,000
490,964
2019
2018
Trade and other payables
Decommissioning liabilities
Operating lease obligations
Fair value through profit or loss
$
863,864
251,550
115,459
$
1,452,085
223,442
-
Warrant liabilities
$
265,029
1,495,902
$
247,654
1,923,181
Page | 45
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
16.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
16.2 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 the warrant liabilities is determined using the
Black-Scholes option pricing model.
The carrying values of cash and trade and other payables 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, decommissioning liabilities, and
operating lease obligations approximate their fair values and are classified as financial assets
and liabilities at amortized cost and are reported at amortized cost.
Page | 46
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
16.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
16.3 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, 2019, 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 | 47
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
16.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
16.3 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, 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.
As at December 31, 2019
1-3 months
3 months -
1 year
Trade and other payables
Operating lease obligations
$
$
728,864
15,573
744,437
$
65,000
40,610
105,610
$
1-5 years
Total
$
70,000
124,526
194,526
$
$
863,864
180,709
1,044,573
$
Page | 48
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
17. 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, 2019, 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, 2019, the Company’s capital structure consists of its equity, see Note 10.
18. COMMITMENTS
Within 1 year
2-4 years
Over 4 years
Total
Annual license payments *
Centennial option
agreement **
Dewey Burdock option
agreements
$
540,356
$
390,097
$
1,338,783
$
2,269,236
-
-
3,165,000
3,165,000
62,500
602,856
$
255,000
645,097
$
1,638,750
6,142,533
$
1,956,250
7,390,486
$
* annual license payments include lease, mineral claim, and exploration license payments
** the contingent payments are payable upon receipt of regulatory permits and licenses
allowing uranium production on the area of the Centennial Project pertaining to these
uranium interests. Further, since the required licenses and permits were not received by
September 27, 2019, the uranium rights, at the option of the seller, can be transferred back
to the seller. The Company is attempting to renegotiate the Centennial Project option
agreement, see Note 6.
Certain of the Company’s commitments may provide the Company with the ability to avoid
funding those commitments; however, the Company discloses the contractual maturities of
the Company's commitments based on management's intent.
Page | 49
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
19.
SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2019, the Company completed the following non-cash
investing and financing activities:
•
•
•
•
•
Issued 1,380,521 common shares to settle $231,424 owing pursuant to the
Company’s ESPP;
Issued 323,553 common shares to settle $55,001 owing pursuant to the Company’s
DSA;
Issued 900,000 common shares to settle $170,068 of outstanding employee
remuneration;
Issued 6,553,022 share purchase warrants valued at $378,506 as part of the March
2019 financing; and
No cash interest or income taxes were paid.
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.
Page | 50
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
20.
NON-CONTROLLING INTEREST
As at December 31, 2018, the Company held a 70.0% interest in UrAsia. On May 23, 2019, the
Company acquired an additional 23.1% interest from two minority shareholders for a
nominal cost giving the Company a 93.1% interest in UrAsia. In October 2019, the Company
sold its 93.1% interest in UrAsia, see Note 6.
Changes in the Company’s non-controlling interest for the years ended December 31, 2019
and 2018 were as follows:
Year ended December 31,
2019
2018
Balance, beginning of year
Non-controlling interest adjustment on
acquisition of 23.1% of UrAsia
Non-controlling interest share of net loss
Non-controlling interest from other
comprehensive income (loss)
Balance, end of year
$
(494,477)
$
(449,996)
753,411
(273,923)
-
(29,435)
14,989
$
-
$
(15,046)
(494,477)
Set out below is the summarized financial information for 100% of UrAsia’s net assets
(liabilities), total comprehensive income (loss) and cash flows. The information is presented
before considering inter-company consolidation and elimination adjustments.
As at
September 30,
2019
As at
December 31,
2018
Current
Assets
Liabilities
Total current net liabilities
Non-current
Assets
Liabilities
Total non-current net assets
$
841
(338,169)
(337,328)
$
129,395
(424,147)
(294,752)
30,405
-
30,405
4,187,711
(975,342)
3,212,369
Net assets (liabilities)
$
(306,923)
$
2,917,617
* September 30, 2019 financial information is presented above, being the assets and liabilities
sold
Page | 51
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
20.
NON-CONTROLLING INTEREST (Continued)
Period ended
September 30,
2019
Year ended
December 31,
2018
Net loss before tax
Deferred income tax recovery (expense)
Net loss
Other comprehensive income (loss)
Total other comprehensive loss
$
$
(3,763,180)
(16,238)
(3,779,418)
863,092
(2,916,326)
(117,560)
17,222
(100,338)
(35,108)
(135,446)
$
$
* Nine months ended September 30, 2019 financial information is presented above, being the
loss for the period prior to the sale of UrAsia
Period ended
September 30,
2019
Year ended
December 31,
2018
$
$
Net cash used in operating activities
Net cash generated from investing activities
Net cash generated from financing activities
Change in cash
Cash, beginning of period
Effect of foreign exchange rate changes on cash
Cash, end of period
(228,218)
99,700
-
(128,518)
129,395
(36)
841
$
$
(160,580)
260,172
-
99,592
30,556
(753)
129,395
* Nine months ended September 30, 2019 financial information is presented above, being the
cash flows for the period prior to the sale of UrAsia
Page | 52
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
21. DEFERRED INCOME TAX
21.1 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.
21.2 Deferred income tax expenses
Year ended December 31,
2019
2018
Net loss before income tax
Statutory tax rate
Deferred income tax recovery based on
statutory rate
Effect of different tax rates applicable in
foreign jurisdictions
Effect of disposition of subsidiary
Unrecognized deferred tax assets
Effect of non-deductible expenses and non-
taxable revenue and other
Deferred income tax (expense) recovery
21.3 Deferred tax balances
$
4,096,816
27%
$
2,110,165
27%
$
1,106,000
$
570,000
(163,000)
(346,000)
(270,000)
(46,000)
-
(966,000)
$
(205,000)
122,000
$
261,000
(181,000)
The Company’s deferred tax liabilities consist of the following amounts:
As at December 31,
2019
2018
Exploration and evaluation assets
Inter-company loans eliminated on
consolidation
Deferred tax liabilities
$
3,112,193
$
3,119,790
-
$
3,112,193
$
1,114,000
4,233,790
As at December 31, 2019 and 2018, the Company has not recognized any deferred tax assets.
Page | 53
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
21. DEFERRED INCOME TAX (Continued)
21.3 Deferred tax balances (Continued)
Changes in the Company’s deferred tax liabilities for the years ended December 31, 2019 and
2018 were as follows:
Year ended December 31,
2019
2018
Opening balance
Reversal of deferred income tax on inter-
company loans
Deferred income tax (recovery) expense
Deferred tax liabilities
$
4,233,790
$
4,052,790
(999,597)
(122,000)
3,112,193
$
-
181,000
4,233,790
$
21.4 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,
2019
2018
Non-capital losses
Deductible temporary differences
Total unrecognized amounts
$
$
3,812,000
44,000
3,856,000
3,565,000
21,000
3,586,000
$
$
As at December 31, 2019 and 2018, the Company had unrecognized deferred tax assets
attributable to deductible temporary differences of $44,000 and $21,000, 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.
Corporate taxpayers in the USA that generate a loss in a taxable year beginning after
December 31, 2017, will be able to carry forward the NOL indefinitely but utilization will be
subject to an annual deduction limitation of 80 percent of taxable income. The losses will not
be allowed to be carried back.
Page | 54
AZARGA URANIUM CORP.
Notes to the Consolidated Financial Statements
(Expressed in U.S. Dollars and in shares, unless otherwise indicated)
For the year ended December 31, 2019
21. DEFERRED INCOME TAX (Continued)
21.5 Expiry dates
The expiry dates of the Company’s unused tax losses are as follows:
Non-capital losses
As at December 31, 2019
United States
Canada
Hong Kong
22.
SUBSEQUENT EVENTS
$
$
7,688,000
8,092,000
651,000
16,431,000
2027 to indefinite
2027 to indefinite
Indefinite
Subsequent to December 31, 2019, the Company completed the following transactions:
•
In January 2020, the Company issued 457,618 common shares to settle $71,877 owing
pursuant to the Company’s ESPP and 87,543 common shares to settle $13,750 owing
pursuant to the Company’s DSA; and
•
In February 2020, the Company received third party loans of C$325,000 that bear interest
at 12% per annum, are unsecured, and mature August 4, 2020.
Page | 55
Azarga Uranium Corp.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2019
(Expressed in U.S. Dollars)
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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, 2019 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, 2019, together with the notes thereto (the “Financial Report”).
All financial information in this MD&A is derived from the Company’s consolidated
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 26, 2020.
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). The Company is an integrated
uranium exploration and development company.
The Company controls uranium properties in the United States of America (the “USA”),
located in South Dakota, Wyoming, Utah and Colorado, with a primary focus of developing
in-situ recovery (“ISR”) uranium projects. The Dewey Burdock ISR uranium project in
South Dakota, USA (the “Dewey Burdock Project”) is the Company’s initial development
priority and has received its Nuclear Regulatory Commission (“NRC”) 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, and uranium exploration properties in Wyoming, Utah and Colorado.
2
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
OPERATIONAL HIGHLIGHTS
The Company’s significant events and highlights for the year ended December 31, 2019
and to the date of this MD&A are as follows:
• Dewey Burdock Project
•
•
•
In January 2020, the Company filed a National Instrument 43-101 (“NI 43-
101”) Technical Report and Preliminary Economic Assessment (“PEA”) for
the Dewey Burdock Project. The base case economic assessment resulted
in a pre-income tax internal rate of return (“IRR”) of 55% and a pre-income
tax net present value (“NPV”) of US$171.3 million when applying an eight
percent discount rate. Using the same discount rate, the post-income tax
IRR is 50% and the post-income tax NPV is US$147.5 million.
In December 2019, the Atomic Safety and Licensing Board (the “ASLB”)
issued its Final Initial Decision and resolved the final remaining contention
on the Company’s Dewey Burdock Project NRC License in favor of the
Company and NRC Staff.
In August 2019, the Company received notice that the EPA issued revised
draft permits for the Dewey Burdock Project. The revised draft permits
incorporate comments submitted to the EPA on the original draft permits,
including comments submitted by the Company and pertain to the
Company’s planned Class III and Class V UIC activities. The revised draft
EPA permits addressed the majority of the comments submitted by the
Company. This is a significant step towards the issuance of the final EPA
permits and continues to advance the Dewey Burdock Project towards
development. The Company remains focused on working with the EPA to
obtain the final permits in the near-term.
• Private Placement
– In March 2019, the Company closed a non-brokered private
placement for gross proceeds of $2,266,169 (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.
• Kyzyl Ompul Project – Kyrgyz Republic
– In October 2019, the Company sold its
93.1% interest in the Kyzyl Ompul Project located in the Kyrgyz Republic for cash
consideration of $232,750. In addition, the Company was granted a 1.862% net
smelter return (“NSR”) royalty on any future uranium production from the Kyzyl
Ompul Project up to $4,665,000.
3
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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 indicates growth
1
– the global reactor pipeline consists
nuclear reactors that are operable, under construction, planned or
1
1
. A total of 163
of 935
proposed. Of the 935 nuclear reactors, 442 reactors are operable
nuclear reactors are under construction or planned, which represents
approximately 37% of the current operating fleet. China, and India lead the world
in terms of the number of nuclear power plants under construction, with eleven
1
and seven, respectively
. China continues to accelerate their nuclear growth plans
2
and intends to have 120-150 GWe of installed capacity by 2030
(currently 46
GWe
1
).
• Current prices are constraining supply
– low prices are forcing producers to
curtail mining, development and exploration. In 2016, Cameco Corp. (“Cameco”)
placed its Rabbit Lake Mine, which produced 4.2 million pounds of uranium in
3
, on care and maintenance, and curtailed its United States uranium
2015
operations. In 2017, Cameco announced temporary production suspensions at its
McArthur River/Key Lake operation, which Cameco expected would remove 18
4
. In July 2018, Cameco
million pounds of uranium from the market in 2018
announced the decision to continue the shutdown of McArthur River/Key Lake
indefinitely. Further, Kazatomprom announced a 20% production cut over a
5
and subsequent to this
period of three years commencing in January 2018
announcement that the 20% production cut would be extended until at least 2021.
This 20% production cut by Kazatomprom is expected to remove approximately
3
from global primary supply in 2021. Global primary
O
14.6 million pounds of U
supply is well below nuclear reactor requirements.
8
• United States Nuclear Fuel Working Group
– In July 2019, President Trump
established the United States Nuclear Fuel Working Group (the “NFWG”) to
develop recommendations for reviving and expanding domestic nuclear fuel
production. President Trump acknowledged that the “United States uranium
industry faces significant challenges in producing uranium domestically and that
this is an issue of national security.” Subsequently, in February 2020, President
Trump’s fiscal 2021 budget proposal requested an annual allocation of US$150
million for a 10-year period, totalling US$1.5 billion, to establish a United States
uranium reserve, noting that “establishing a uranium reserve provides assurance
1 World Nuclear Association – World Nuclear Power Reactors & Uranium Requirements (January 2020)
2 World Nuclear Association – Nuclear Power in China (January 2020)
3 Cameco 2016 Annual Information Form dated March 23, 2017
4 Cameco Corp. Management Discussion & Analysis for the quarter ended June 30, 2018
5 NAC “Kazatomprom” JSC news release dated December 4, 2017
4
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
of availability of uranium in the event of a market disruption and supports
strategic U.S. fuel cycle capabilities.” The proposed fiscal 2021 budget “addresses
immediate challenges to the production of domestic uranium and reflects the
Administration's NFWG priorities. The NFWG will continue to evaluate issues
related to uranium supply chain and fuel cycle.”
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
remains focused on working with the EPA to obtain the final Class III and Class V
UIC permits in the near-term. In August 2019, the EPA issued revised draft
permits that addressed the majority of the comments submitted by the Company.
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.
• Focus on identifying uranium resources at the Dewey Terrace Project
– the
Company is continuing the evaluation and analysis of historical data at the Dewey
Terrace Project with the goal of identifying additional uranium mineralization.
• Focus on identifying additional uranium resources and ISR amenability at
the Gas Hills Project
– the Company is in the process of reviewing historical data
at the Gas Hills Project with the goal of identifying additional uranium
mineralization. The Company has also 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 ISR
uranium projects in the USA.
• 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.
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 2019 PEA demonstrates that the Dewey Burdock Project is one of
the United States’ preeminent undeveloped ISR uranium projects;
5
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
•
•
•
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 and PEA
In January 2020, the Company filed a NI 43-101 compliant independent Technical Report
and PEA for the Dewey Burdock Project prepared by Woodard & Curran and Rough Stock
Mining Services (the “Dewey Burdock PEA”) with an effective date of December 3, 2019.
Dewey Burdock Project ISR Mineral Resource Estimate
Measured
Resources
5,419,779
0.132
5.56
0.733
Indicated
Resources
1,968,443
0.072
5.74
0.413
Measured
plus
Indicated
Resources
7,388,222
0.116
5.65
0.655
Inferred
Resources
645,546
0.055
5.87
0.324
14,285,988
2,836,159
17,122,147
712,624
Tons
8
3
)
Average grade (%U
O
Average thickness (feet)
Average grade-thickness
(“GT”)
Uranium (pounds) at a
0.20 GT cut-off
Note: mineral resources that are not mineral reserves do not have demonstrated
economic viability.
In addition to the ISR mineral resource estimate, the NI 43-101 resource estimate
includes a non-ISR (located above the water table) mineral resource estimate containing
8
3
measured resources of 857,186 pounds at 0.060% U
, indicated resources of 407,851
O
3
8
3
pounds at 0.053% U
at a
O
and inferred resources of 114,858 pounds at 0.051% U
O
0.20 GT cut-off. The non-ISR mineral resource estimate is not included in the mineral
8
6
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
resource figures presented in the economic analysis for the Dewey Burdock PEA. Mineral
resources that are not mineral reserves do not have demonstrated economic viability.
The Dewey Burdock PEA resulted in a pre-income tax NPV of $171.3 million at a discount
rate of 8% and an IRR of 55% compared to a post-income tax NPV of $147.5 million at a
discount rate of 8% and an IRR of 50%. The Dewey Burdock PEA post- income tax
calculations do not include a corporate level assessment of income tax liabilities; taxes
have only been calculated at the Dewey Burdock Project level. The estimate of income tax
at the corporate level is subject to a number of additional considerations that have not
been factored in when calculating income taxes at the project level, including, but not
limited to, the capital structure to finance the Dewey Burdock Project, which has not yet
been determined and loss carry forwards available at the corporate level.
8
3
The Dewey Burdock PEA estimated uranium prices of $55/lb U
, direct cash operating
O
costs of $10.46 per pound of production and royalties and local taxes (excluding property
tax) of $5.15 per pound of production. The total pre-income tax cost of uranium
production is estimated to be $28.88 per pound of production. Income taxes are
estimated to be $3.39 per pound of production.
Initial capital expenditures are estimated at $31.7 million. The Dewey Burdock Project is
3
8
over its 16 years of production and the
O
forecast to produce 14.3 million pounds of U
projected cash flows of the Dewey Burdock Project are expected to be positive in the
second year of production, two years after the commencement of construction.
Details of the assumptions and parameters used with respect to the Dewey Burdock PEA,
including information on data verification, are set out in the “NI 43-101 Technical Report
Preliminary Economic Assessment, Dewey Burdock Uranium ISR Project, South Dakota,
USA, dated January 17, 2020, with an effective date of December 3, 2019, a copy of which
is available under the Company’s profile at www.sedar.com. The Dewey Burdock PEA is
preliminary in nature; it includes inferred mineral resources that are considered too
speculative geologically to have the economic considerations applied to them that would
enable them to be categorized as mineral reserves. There is no certainty that the Dewey
Burdock PEA will be realized. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
7
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
Summary of Permitting
Permit, License or Approval Name
Agency
UIC Class III Permit
EPA
UIC Class V Permit
Final Source and By-product
Materials License
NRC
Ground Water Disposal Plan
DENR
Water Rights Permit
Large Scale Mine Plan Permit
Plan of Operations
BLM
•
•
•
•
•
•
Status
Revised draft permits issued
August 2019
Working with EPA to obtain
final permits in near-term
Issued April 2014 and in
good standing
Applications complete and
recommended for
conditional approval by
DENR staff
Hearings for final approval
commenced in late-2013,
continuance ordered until
completion of federal
regulatory approvals (NRC
and EPA)
Approval anticipated to
follow resolution of final
NRC license 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
8
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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 related to identification and protection of historic and
cultural resources, the ASLB requested additional consultation between the NRC staff and
the Oglala Sioux Tribe. The ASLB also ruled inadmissible two new contentions that were
filed by the Intervenors after the evidentiary hearing.
Subsequent to the ASLB partial initial decision in April 2015, the Company and the NRC
staff filed petitions for review of the ASLB decision to the NRC Commission with respect
to their ruling that additional consultation efforts were required between the Oglala
Sioux Tribe and the NRC staff regarding the two contentions relating to the identification
and protection of historic and cultural resources. The Intervenors filed petitions for
review of the ASLB decision to the NRC Commission covering most of the contentions
heard by the ASLB. Upon consideration of the information presented, the NRC
Commission denied the party’s petitions for review of the ASLB decision, with the
exception of 1) the NRC staff’s and the Company’s petition for review with respect to the
ASLB’s direction to the NRC staff regarding the resolution of the outstanding two
contentions relating to the identification and protection of historic and cultural
resources, in which the NRC Commission ultimately affirmed the ASLB’s decision and 2)
a petition for review filed by the Oglala Sioux Tribe claiming that the draft SEIS had been
issued without the requisite scoping process, in which the NRC Commission affirmed the
ASLB’s decision and dismissed the contention.
In August 2017, the Company received notice that the NRC staff filed a motion for
summary disposition before the ASLB to resolve the remaining two contentions from the
ASLB partial initial decision. The Company filed a brief in support of the NRC staff motion,
while the Intervenors filed briefs opposing the motion. In October 2017, the ASLB issued
a memorandum and order pertaining to this motion. With respect to the outstanding
contention requiring additional consultation between the NRC staff and the Oglala Sioux
Tribe under the National Historic Preservation Act, the ASLB granted the motion for
summary disposition in favor of the NRC staff and the Company. With respect to the
outstanding contention pertaining to the identification and protection of historic and
cultural resources for the purposes of compliance with the National Environmental Policy
Act (“NEPA”), the ASLB did not grant the motion for summary disposition. 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
9
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
revoke the Company’s Dewey Burdock Project NRC license and the NRC staff’s summary
disposition motion to resolve the remaining contention. In May 2019, the ASLB issued
an order granting the NRC staff’s motion to set a schedule for an evidentiary hearing
pertaining to the final contention. The ASLB decision provides the NRC staff and the
Company with an opportunity to resolve the final contention for the Dewey Burdock
Project NRC license within legally established timelines. The NRC staff determined that
an evidentiary hearing, one of the two options previously presented by the ASLB to
address the only remaining contention, was the most appropriate path forward as the
other approach did not have a reasonable expectation of agreement in an acceptable
timeframe. In December 2019, the ASLB issued its Final Initial Decision and resolved the
final remaining contention for the Dewey Burdock Project NRC license in favor of the
Company and NRC staff. Subsequently, the Intervenors have appealed this decision to
the NRC Commission.
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
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.
In August 2019, the Company received notice that the EPA issued revised draft permits
for the Dewey Burdock Project. The revised draft permits incorporate comments
submitted to the EPA on the original draft permits, including comments submitted by the
Company and pertain to the Company’s planned Class III and Class V UIC activities. The
revised draft EPA permits addressed the majority of the comments submitted by the
Company. This is a significant step towards the issuance of the final EPA permits and
continues to advance the Dewey Burdock Project towards development. The Company
remains focused on working with the EPA to obtain the final permits in the near-term.
10
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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 in the near-
term now that the final contention on the Dewey Burdock Project NRC license has been
resolved.
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
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
8
3
grade of 0.062% and an average thickness of 7.4 feet. The
O
cutoff with an average eU
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
11
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
thickness of 4.1 feet with an average grade of 0.041% eU
holes reviewed range from barren to an average GT of 0.1.
8
3
. The remaining 187 drill
O
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.
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
8
3
(2.4 million tons at an average
O
indicated uranium resources of 4.7 million pounds U
8
3
8
3
(2.3
) and inferred uranium resources of 2.5 million pounds U
O
grade of 0.098% U
O
8
million tons at an average grade of 0.054% U
) at a 0.10 GT cut-off. Mineral resources
that are not mineral reserves do not have demonstrated economic viability.
3
O
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
12
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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 the 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:
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.
13
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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
8
3
uranium prices of $65/lb U
and capital costs
O
of $71.1 million. The Centennial PEA included indicated uranium resources of
8
3
and inferred uranium resources of 2,325,514 pounds
O
10,371,571 pounds at 0.09% U
8
3
at 0.09% U
at a 0.20 GT cut-off and annual production of 700,000 lbs per annum, which
O
resulted in a 14-year mine life.
8
3
, cash operating costs of $34.95/lb U
O
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.
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. Pursuant to the agreement, the contingent
14
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
payments are payable upon receipt of regulatory permits and licenses allowing uranium
production on the area of the Centennial Project pertaining to these uranium interests.
Further, unless otherwise agreed, if the Company does not obtain such permits and
licenses by September 27, 2019, the uranium rights, at the option of the seller, can be
transferred back to the seller. To date, the Company has neither obtained the required
regulatory permits and licenses nor has the Company been able to renegotiate the option
agreement. However, the Company is attempting to renegotiate the option agreement
and the seller has not exercised its option to have the uranium rights transferred back.
As a result of the uncertainty surrounding this option agreement, which represents 5,760
of the 6,238 mineral acres at the Centennial Project, significant doubt over the future
recoverability of the carrying value exists. Accordingly, during the year ended December
31, 2019, the Company recognized an impairment charge of $2,422,398 for the
Centennial 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
8
3
(5.1
O
Ridge Project contains indicated uranium resources of 6.0 million pounds U
8
) and inferred uranium resources of 0.2
million tons at an average grade of 0.058% U
8
3
) at a 0.10 GT
O
million pounds U
cut-off.
3
O
8
3
(0.1 million tons at an average grade of 0.085% U
O
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
8
3
PEA assumed uranium prices of $65/lb U
, total direct operating costs of $39.77/lb
O
U
8
3
and capital expenditures of $36.7 million.
O
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. 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
15
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
will be realized. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
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 consist 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 Project
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
8
3
and inferred
O
contains indicated uranium resources of 1,038,023 pounds at 0.111% U
3
at a 0.20 GT cut-off. Mineral
O
uranium resources of 101,255 pounds at 0.119% U
resources that are not mineral reserves do not have demonstrated economic viability.
8
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% -
8
3
0.12% U
. In over 80% of the project area, the density of exploration drilling is light
O
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.
16
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
Details of the assumptions and parameters used with respect to the Aladdin NI 43-101
compliant 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 (93.1% interest sold in October 2019) – Kyrgyz Republic
In October 2019, the Company sold its 93.1% interest in UrAsia in Kyrgyzstan Limited
Liability Company (“UrAsia”) to Central Asian Uranium Company Limited Liability
Company (“Central”) for $232,750. In addition, UrAsia granted the Company a 1.862%
NSR royalty on any future uranium production from the Kyzyl Ompul Project up to
$4,655,000. UrAsia held a 100% interest in the Kyzyl Ompul Project.
In April 2018, as amended, UrAsia entered into an earn-in agreement (the “Earn-in
Agreement”) with Central pursuant to which Central had 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. During the year ended December 31, 2019 and 2018, Central made
cash payments of $130,000 and $290,000, respectively, to the Company under the Earn-
in Agreement.
In May 2019, the Kyrgyz Republic’s parliament voted to ban uranium exploration and
mining in the country. The Kyzyl Ompul Project exploration license was subsequently
suspended due to force majeure circumstances, among other reasons, resulting from the
Kyrgyz Republic government’s actions. The Company determined that these events in
the Kyrgyz Republic cast significant doubt over the future validity of the Company’s
exploration license on the Kyzyl Ompul Project as well as on the future cash flows
expected under the Earn-in Agreement. Accordingly, during the year ended December
31, 2019, the Company recognized an impairment charge of $4,140,444 for the Kyzyl
Ompul Project.
17
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
QUALIFIED PERSON
Disclosure of a scientific or technical nature in this MD&A has been reviewed and
approved by John Mays, P.E., Chief Operating Officer and a “qualified person” as defined
under NI 43-101.
SELECTED ANNUAL INFORMATION
Year
Ended
December
31, 2019
Year
Ended
December
31, 2018
Year
Ended
December
31, 2017
Statement of Loss:
Net revenues
Net loss
Net loss per share,
basic and diluted
Financial Position:
Total assets
Non-current liabilities
Dividends
$Nil
$7,737,996
$Nil
$2,408,725
$Nil
$5,280,632
$0.05
$0.02
$0.07
$41,850,626 $47,304,353 $33,695,520
$4,854,886
$3,769,217
$Nil
$Nil
$6,229,824
$Nil
The net loss for the year ended December 31, 2019 included a $6.6 million impairment of
exploration and evaluation assets related to the Centennial and Kyzyl Ompul projects.
The net loss for the year ended December 31, 2017 included a $6.3 million impairment of
exploration and evaluation assets related to Kyzyl Ompul project and an associated
$2,236,000 deferred income tax recovery.
18
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
RESULTS OF OPERATIONS – YEAR ENDED DECEMBER 31, 2019
The consolidated net loss for the year ended December 31, 2019 was $8,289,158
compared to $2,408,725 for the year ended December 31, 2018.
The significant changes between the current period and the comparative period are
discussed below:
Administrative expenses totaled $1,943,285 for the year ended December 31, 2019
compared to $2,040,580 for the year ended December 31, 2018. The decrease in
administrative expenses primarily related to reduced corporate administration due to
cost cutting measures.
During the year ended December 31, 2019, the Company recognized an impairment
charge of $2,422,398 for the Centennial Project.
Finance costs totaled $9,734 for the year ended December 31, 2019 compared to
$154,913 for the year ended December 31, 2018. Finance costs for 2019 related to
interest expense on the Company’s operating lease obligations while the finance costs for
2018 related primarily to interest expense on the $1,776,000 shareholder loan which was
settled in July 2018 through the issuance of common shares of the Company.
The Company recognized an unrealized gain on warrant liabilities of $371,983 for the
year ended December 31, 2019 compared to $51,789 for the year ended December 31,
2018.
In October 2019, the Company sold its Kyzyl Ompul project located in Kyrgyzstan. The
Company’s operations in Kyrgyzstan represented a separate geographical segment and
accordingly the Company has presented these operations as discontinued operations for
years ended December 31, 2019 and 2018. The net loss from discontinued operations
for the year ended December 31, 2019 was $3,763,180 compared to $117,560 for the
year ended December 31, 2018. The net loss from discontinued operations for the
current year includes:
•
•
•
•
an impairment charge of $4,140,444 for the Kyzyl Ompul Project;
a reversal of deferred income tax liabilities of $999,597 on the impairment charge
to the Kyzyl Ompul Project;
a foreign exchange loss of $1,080,330; and
a gain on sale of UrAsia of $499,173.
19
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
SUMMARY OF QUARTERLY RESULTS
The following tables provide selected quarterly financial information for the most recent
eight quarters.
3 Months
Ended
3 Months
Ended
December 31, September 30,
(1)
2019
2019
3 Months
Ended
June 30,
(2)
2019
3 Months
Ended
March 31,
2019
Total revenues
$
-
$
-
$
-
$
-
Net loss
$
(170,830)
$
(2,882,698)
$
(4,492,364)
$
(192,104)
Net loss per share,
basic and diluted
$
(0.00)
$
(0.01)
$
(0.03)
$ (0.00)
3 Months
Ended
3 Months
Ended
December 31, September 30,
2018
2018
3 Months
Ended
June 30,
2018
3 Months
Ended
March 31,
2018
Total revenues
$
-
$
-
$
-
$
-
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)
(1) The three months ended September 30, 2019 included an impairment charge
of $2,422,398 for the Centennial Project.
(2) The three months ended June 30, 2019 included an impairment charge of
$4,140,444 for the Kyzyl Ompul Project.
20
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
FOURTH QUARTER 2019
The Company began the fourth quarter with a cash balance of $343,778. During the three
months ended December 31, 2019, the Company expended $180,280 on operating
activities, net of working capital changes, expended $167,245 on investing activities, and
received $191,409 from financing activities, with a negative $3,215 effect of foreign
exchange on cash to end the quarter and the year with $184,447 cash.
LIQUIDITY AND CAPITAL RESOURCES
The Company began the fiscal year with a cash balance of $352,001. During the year
ended December 31, 2019, the Company expended $1,489,506 on operating activities,
net of working capital changes, expended $1,115,148 on investing activities, and received
$2,441,025 from financing activities, with a negative $3,925 effect of foreign exchange on
cash to end at December 31, 2019 with a cash balance of $184,447.
In March 2019, the Company closed a non-brokered private placement for gross proceeds
of $2,266,169 (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 $5,696 and other share issue costs of $10,857.
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.
To date, the Company has not generated revenues from operations and is currently in the
exploration and development stage. As at December 31, 2019, the Company had a
working capital deficit of $630,518 and an accumulated deficit of $26,988,501 and will
continue incurring losses for the foreseeable future. Additional funding will be required
by the Company to complete its strategic objectives and continue as a going concern.
There is no certainty that additional financing, at terms that are acceptable to the
Company, will be available. Further, at present, the COVID-19 pandemic is negatively
impacting financial markets globally and this may adversely affect the Company’s ability
to raise capital for future operations and exploration and development of the Company’s
mineral properties. 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 material uncertainties
cast significant doubt on the Company’s ability to continue as a going concern.
21
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
At the date of this MD&A, the Company has 10,454,490 exercisable share purchase
warrants outstanding at exercise prices ranging from C$0.31 to C$0.36 and 11,795,000
exercisable stock options outstanding at exercise prices ranging from C$0.075 to C$0.36,
that if exercised will raise additional capital for the Company.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Within 1 year
2-4 years
Over 4 years
Total
Annual license payments *
Centennial option
agreement **
Dewey Burdock option
agreements
$
540,356
$
390,097
$
1,338,783
$
2,269,236
-
-
3,165,000
3,165,000
62,500
602,856
$
255,000
645,097
$
1,638,750
6,142,533
$
1,956,250
7,390,486
$
* annual license payments include lease, mineral claim, and exploration license payments
** the contingent payments are payable upon receipt of regulatory permits and licenses
allowing uranium production on the area of the Centennial Project pertaining to these
uranium interests. Further, since the required licenses and permits were not received by
September 27, 2019, the uranium rights, at the option of the seller, can be transferred
back to the seller. The Company is attempting to renegotiate the Centennial Project
option agreement.
Certain of the Company’s commitments may provide the Company with the ability to
avoid funding those commitments; however, the Company discloses the contractual
maturities of the Company's commitments based on management's intent.
22
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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:
As at December 31,
Financial assets
Amortized cost
Cash
Restricted cash
Reclamation bonds
Financial liabilities
Amortized cost
2019
2018
$
$
$
184,447
22,716
-
207,163
As at December 31,
$
352,001
39,963
99,000
490,964
2019
2018
Trade and other payables
Decommissioning liabilities
Operating lease obligations
Fair value through profit or loss
$
863,864
251,550
115,459
$
1,452,085
223,442
-
Warrant liabilities
$
265,029
1,495,902
$
247,654
1,923,181
23
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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 the warrant liabilities is determined
using the Black-Scholes option pricing model.
The carrying values of cash and trade and other payables 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, decommissioning liabilities,
and operating lease obligations approximate their fair values and are classified as
financial assets and liabilities at amortized cost and are reported at amortized cost.
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, 2019, 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:
24
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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.
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.
25
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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 expected expenditures. The Company prepares
annual expenditure budgets that are updated as necessary depending on various factors,
including capital deployment, progress on permitting, results from the exploration and
development of its properties and general industry conditions. The annual and updated
budgets are approved by the Board of Directors.
The Company’s current and expected remaining contractual maturities for its financial
liabilities with agreed repayment periods are presented below. The table includes the
undiscounted cash flows of financial liabilities based on the earliest date on which the
Company can be required to satisfy the liabilities.
As at December 31, 2019
1-3 months
Trade and other payables
Operating lease obligations
$
$
728,864
15,573
744,437
1-5 years
Total
$
70,000
124,526
194,526
$
$
863,864
180,709
1,044,573
$
3 months -
1 year
$
65,000
40,610
105,610
$
26
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
RELATED PARTY TRANSACTIONS AND BALANCES
Related party transactions
During the year ended December 31, 2019, the Company recorded related party
transactions with management including:
•
The issuance of 800,000 common shares to executive management of the
Company to settle employee remuneration.
During the year ended December 31, 2018, the Company recorded related party
transactions with directors, management and shareholders including:
•
•
•
•
•
Interest accruing of $143,219 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 common shares to executive management of the
Company to settle employee remuneration.
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:
Year ended December 31,
2019
2018
Salaries and benefits *
Consulting and professional fees
Share-based compensation
$
$
837,365
161,881
207,595
1,206,841
841,476
139,926
200,791
1,182,193
$
$
* Salaries and benefits are included in administrative expenses and exploration and
evaluation assets.
27
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
Related party liabilities
As at December 31,
2019
2018
Trade and other payables - current
Trade and other payables - non-current
$
$
276,042
70,000
346,042
176,422
150,000
326,422
$
$
Included in trade and other payables as at December 31, 2019 and 2018 is $346,042 and
$326,422, respectively, owing to related parties of the Company, of which $170,000 and
$230,000, 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. During the year ended December 31, 2019 and 2018, the
Company paid the former director $60,000 and $140,000, respectively, towards the
outstanding balance. The Company has classified $100,000 as current and $70,000 as
non-current as at December 31, 2019 and $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.
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, 2019 and through the date of this
MD&A, the following common shares, share purchase warrants and stock options are
issued and outstanding:
Balance, December 31, 2019
Issuance of shares for ESPP
Issuance of shares for DSA
Balance as at the date of this
MD&A
Common
Shares
185,543,926
457,618
87,543
Share Purchase
Warrants
10,454,490
-
-
Stock
Options
14,622,500
-
-
186,089,087
10,454,490
14,622,500
28
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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
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.
29
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
During the year ended December 31, 2019, the Company recorded an impairment charge
of $4,140,444 on its Kyzyl Ompul project in Kyrgyzstan and an impairment charge of
$2,422,398 on its Centennial project in Colorado.
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.
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.
30
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of new standards, interpretations and amendments
The Company adopted the requirements of IFRS 16 – Leases (“IFRS 16”) as of 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
leased asset. For assets that meet the definition of a lease, IFRS 16 requires a single, on-
balance sheet accounting model similar to finance lease accounting, with exceptions for
short-term leases, leases of low value assets, and mineral exploration leases. Accordingly,
IFRS 16 applies only to the Company’s office leases. The Company has applied the
modified retrospective approach in adopting IFRS 16.
On January 1, 2019 the Company recorded right-of-use assets totaling $152,214 with a
corresponding entry to operating lease obligations. The Company calculated the present
value of the minimum lease payments using an incremental borrowing rate of 7% and an
exchange rate of $/C$ 1.3642. Thereafter, the right-of-use assets are depreciated on a
straight-line basis over the term of the leases, which range from 2 to 5 years.
Standards issued but not yet effective
A number of new standards, amendments to standards and interpretations are not yet
effective as of December 31, 2019 and have not been applied in preparing the Company’s
consolidated financial statements. The standards are not expected to materially impact
the Company’s financial position or results of operations.
PROPOSED TRANSACTIONS
As is typical of the mineral exploration and development industry, the Company is
continually reviewing potential acquisition, investment and joint venture transactions
and opportunities that could enhance shareholder value. There is currently no proposed
asset or business acquisitions or dispositions, other than those discussed in this MD&A
and those in the ordinary course, before the Board of Directors for consideration. While
we remain focused on our plans to continue exploration and development on our
material property, should we enter into agreements in the future on new properties, we
may be required to make cash payments and complete work expenditure commitments
under those agreements.
31
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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,
2019, 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
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
32
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
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, 2019.
There were no changes in the Company’s internal controls over financial reporting that
occurred during the year ended December 31, 2019, 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 the
Company 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 the Company and its
management in light of its experience and its perception of historical trends, current
conditions and expected future developments, as well as other factors it believes are
appropriate in the circumstances.
Although the Company 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
33
AZARGA URANIUM CORP.
Management’s Discussion and Analysis
For the year ended December 31, 2019
or developments may differ materially from those projected in forward-looking
information and statements. Whether actual results will conform to the expectations of
the Company 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 the Company 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 the Company will be realized or, even
if substantially realized, that they will have the expected consequences for the Company.
Forward-looking statements are based on the beliefs, estimates and opinions of the
Company’s management on the date the statements are made. Unless otherwise required
by law, the Company 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 the Company 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.
34