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In 2011 Peter Epstein, CFA, left a $3 billion hedge fund where he was a senior natural resources analyst to help increase awareness of a number of natural resource companies in which he's invested in. PLEASE FOLLOW ME ON TWITTER: @peterepstein2 Mr. Epstein formed MockingJay, Inc., a... More
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  • Powertech To Merge With Azarga, Market Likes It!  0 comments
    Feb 28, 2014 12:28 PM | about stocks: PWURF, UUUU, CCJ, MGAFF, UEC, URZ, URG, URRE, DNN

    Article written by Peter Epstein. Disclosure: Peter Epstein owns shares of Powertech Uranium, but has no prior or existing relationship with Powertech or Azarga Resources. The following views are entirely his own. Peter Epstein is not an investment advisor, please do your own due diligence.

    Like many natural resource company stocks, especially uranium stocks, Powertech Uranium [PWE.to] / [PWURF] had been stuck near its 52-week low for months. However, when peer uranium juniors started to fly, many now up 100% to 500% from 52-week lows, Powertech's shares languished. This, despite the fact that Powertech recently received great news from the NRC on the environmental permitting front.

    Here's a quote from a January 30, 2014 press release from Powertech,

    "A proposed uranium mine in South Dakota [Dewey Burdock] cleared a key regulatory hurdle Thursday when a federal agency issued a favorable environmental assessment of the project. The U.S. Nuclear Regulatory Commission said its final supplemental environmental impact statement found there is nothing that would preclude licensing the proposed Dewey-Burdock mine. The report said the project would generally have small impacts on the area's soil, water, air and economy."

    THE BEST YET TO COME?

    Importantly, Wednesday's news [See Press Release] regarding the proposed acquisition of Alex Molyneux's Azarga Resources, coupled with the meaningful under-performance of Powertech's stock and the favorable NRC ruling, could set PWE.to up for a powerful move. If approved, the new entity to be called Azarga Uranium Corp., "AUC" would have ample liquidity through cash / undrawn debt facilities totaling US$13 million and attributable uranium resources of approximately 94 million lbs. It would be very difficult for me to overstate the significance of the pro forma $13 million of unrestricted liquidity, equal to approximately 25% of the upfront capital required to get Dewey Burdock into production. A larger, more diversified Powertech/Azarga would find it easier to finance Dewey Burdock with a prudent mix of debt & equity.

    MARKET REACTION STRONG

    The market appears to have taken notice. Almost 5 million shares of Powertech traded on BOTH Wednesday AND Thursday, over 9 million shares in total…that's roughly 15 times the daily average before this week's news. Alex Molyneux has a large number of contacts, friends & family in Hong Kong (where he's based), Singapore, Malaysia and Australia. Presumably, a lot of his network doesn't have a trading platform that accommodates the purchase of Canadian-listed stocks.

    However, if Alex's entourage gets behind PWE.TO, the stock could soar. I think we've seen a few big fish already in the market, accounting for a significant portion of the heavy volume on Wednesday and Thursday. I caught up with Mr. Molyneux Thursday night (New York time). Asked about the reaction to the Powertech/Azarga news, he said,

    "I am quite pleased the market appears to favor the proposed merger. I've received several phone calls and emails requesting more information. It's clear to me that investors are looking for pure-play uranium exposure but they need some critical mass and solid funding in place to know they have safe leverage to the upside when it comes. Azarga Uranium Corp., which will have ample liquidity and exposure to multiple uranium projects, could do extremely well."

    BRIEF REVIEW OF HIGHLY COMPELLING DEWEY BURDOCK PROJECT

    As a reminder, Dewey Burdock is without question one of the strongest near-term (2016 or sooner) U.S. ISR projects. Peer assets just entering production now, or coming online in the next few years, have one or more of the following characteristics- smaller size, lower ore grade and higher costs. Dewey does not have the lowest cost or the largest deposit, but it has by far the highest ore grade… from 30% to 300% higher! For example, although Australian-listed Peninsula Energy's proposed Lance project in Wyoming is meaningfully larger, Lance's ore grade is 0.05% (500ppm) vs. Dewey's grade of 0.21% (2,100ppm). Among the 8 new, or soon-to-be producing, ISR projects, Dewey's forecasted 48% IRR is among the best of the bunch.

    HUGE DE-RISKING OF, AND VOTE OF CONFIDENCE IN, POWERTECH'S PROJECTS

    AUC would hold the legacy Powertech assets, [including Dewey Burdock, the highest grade, near-term ISR development project in U.S.] but with much stronger financial backing to get the assets into production. Further, it would enjoy significantly greater geographic and operational diversification, including a 34% stake in Black Range Minerals' 91 million pound uranium resource in Colorado, access through Black Range to a potentially game-changing uranium mining technology, a 12% stake in a company with an ISR project in Turkey boasting a 103% IRR (@ a $60/lb uranium price) and the largest known historical uranium resource in the Kyrgyz Republic. [NOTE: the Kyrgyz Republic borders Kazakhstan, which is by far the largest producer of uranium on the planet.]

    The proposed AUC would form a highly significant platform for acquiring additional uranium assets, including acquiring junior peers outright. Over time, AUC could become the most globally diversified pure-play uranium company in the world…. Certainly the most diversified small-to-mid-cap player.

    A company that possesses similarly broad diversification, through a portfolio of equity holdings in public uranium companies, is Mega Uranium. Mega's stock has quadrupled in the past 3 months! As evidence mounts of a global nuclear renaissance, most notably from recent positive news out of Japan, I strongly believe that Powertech, soon to be Azarga Uranium Corp, has substantial room to rally.

    Disclosure: I am long PWURF.

    Themes: uranium Stocks: PWURF, UUUU, CCJ, MGAFF, UEC, URZ, URG, URRE, DNN
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