AZARGA TAKEOVER BY SUMMER 2014?
Hong Kong firm buys out Synatom, increasing ownership to 45.1%; expected conversion of debt to equity will give Azarga control of Powertech; mining method for Centennial and Dewey-Burdock likely to change
Posted November 18, 2013
In a news release filed November 12 with Canadian securities regulators, Hong Kong investment firm Azarga Resources Limited announced the acquisition of 23,390,000 shares of Powertech Uranium Corp., increasing its ownership of the Canadian company to 45.1%. The acquisition appears to be part of a plan to take over Powertech. Starting on July 22 of this year, Azarga began to acquire large blocks of Powertech stock. It currently holds debt issued by Powertech that can be converted into an additional nearly 45 million shares of Powertech. Conversion will give Azarga full control of the Canadian company.
| Azarga Resources Limited's ownership of Powertech Uranium Corp. | ||||
| Transaction Date | Description | Shares | Cumulative Shares | Ownership |
| 7/22/2013 | purchase from K2 Principal Fund L.P. | 24,650,000 | 24,650,000 | 17.5% |
| 10/21/2013 | debenture conversion | 8,450,035 | 33,100,035 | 21.6% |
| 11/7/2013 | purchase from undisclosed party | 12,501,536 | 45,601,571 | 29.8% |
| 11/12/2013 | purchase from Société Belge de Combustibles Nucléaires Synatom SA | 23,390,000 | 68,991,571 | 45.1% |
| July 2014 (projected) | loan facility conversion | 44,886,316 | 113,877,887 | 57.6% |
The recent acquisition involved the transfer of shares from Belgian firm Société Belge de Combustibles Nucléaires Synatom SA. Synatom first invested in Powertech in 2008, purchasing 6 million shares at $1.50 CAD per share (Powertech shares currently trade at $0.10 CAD per share.) Over the next few years, Synatom lost millions on a series of loans made to Powertech. The Belgian company has been trying to sell its Powertech stake since 2010.
Under the terms of an October 21 agreement between Azarga and Powertech whereby Azarga agreed to loan $3.6 million to Powertech, Azarga can convert the debt to Powertech shares any time after July 22, 2014. Upon conversion and assuming the full $3.6 million had been advanced, Azarga would own roughly 58% of Powertech. Such a conversion would significantly dilute existing shareholders.
The nine months between the recent loan closing and the date that Azarga can take over Powertech gives CEO Dick Clement a final shot at permitting the controversial Dewey-Burdock in-situ leach uranium project, proposed for a site near Edgemont, South Dakota. If Clement can obtain all necessary permits by late spring of 2014, he may be able to raise enough capital to pay back Azarga and prevent a takeover. However, this appears unlikely since none of the seven major federal and state permits have yet been obtained.
The major permits include a source material license issued by the U.S. Nuclear Regulatory Commission, Class III and Class V Underground Injection Control permits issued by the U.S Environmental Protection Agency, and four permits issued by the South Dakota Department of Environment & Natural Resources: a Large Scale Mine permit, a Ground Water Discharge permit, and two water right permits.
Any permit issued to Powertech will be subject to legal challenge by Dewey-Burdock opponents. The only permits that have any chance of being issued and successfully defended upon appeal before a possible mid-2014 Azarga takeover are the two water right permits and the Ground Water Discharge permit. It is doubtful that Clement could attract sufficient financing to pay off Azarga without having all the major permits for Dewey-Burdock in hand.
If Azarga executes a takeover, the Hong Kong firm is likely to drastically change Powertech's business plan. Azarga's CEO Alex Molyneux is perhaps the world's foremost proponent of the technologies of borehole mining and ablation for the extraction and processing of uranium. Touted by supporters as more economical, more environmentally-friendly, and easier to permit that in-situ leaching, the system of borehole mining and ablation is currently the subject of a major promotional campaign run by Australian penny stock firm Black Range Minerals and financed by Azarga. Black Range controls uranium deposits near Cañon City, Colorado and recently inked a deal to purchase the inactive Shootaring Canyon uranium mill in Utah.
Azarga is Black Range's largest shareholder and is financing the company's efforts to develop and commercialize the borehole mining/ablation system. Molyneux and Black Range promote the system as a game-changing innovation in spite of the fact that it has never actually been field tested, much less commercially deployed to mine and process uranium ore.
If Azarga assumes control of Powertech, and Dewey-Burdock remains unpermitted for in-situ leaching, Molyneux may propose a switch to borehole mining and ablation for both Dewey-Burdock as well as the mothballed Centennial project in northern Colorado. Powertech began permitting efforts for both projects in 2006 and ceased all permitting activities for the Centennial project in late 2011. Azarga purchased 60% of the Centennial project from Powertech in August.
If ISL is abandoned in favor of borehole mining/ablation, members of the Powertech team that haven't already jumped ship may be forced out. Azarga has already negotiated the closure of Powertech's corporate office in Vancouver, British Columbia and the closure of its Albuquerque, New Mexico office. CEO Dick Clement is the only Powertech official who lives in the Albuquerque area.
An Azarga takeover of Powertech and a switch to borehole mining/ablation are both speculative at this point, and hinge in part on the successful commercialization of the process. Black Range has announced the imminent testing of a new ablation machine at the Casper, Wyoming headquarters of its joint venture partner Ablation Technologies LLC. Black Range has so far failed to publicly disclose that staff from the U.S. Nuclear Regulatory Commission have made a preliminary determination that ablation testing with uranium ore would require a source material license from the NRC. NRC staff have attempted to contact Ablation Technologies to discuss the issue of licensing but as yet there is no publicly-available information regarding any such discussions.
JW