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Azarga Uranium (TSX-V: AZZ) CEO Blake Steele and Chairman Glenn Catchpole on the URZ Energy Merger, the Flagship Dewey Burdock ISR Project & the Section 232 Investigation

July 20, 2018

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Azarga Uranium (TSX-V: AZZ)(OTC: PWURF), Mr. Blake Steele, and the Chairman of Azarga, Glenn Catchpole. Gentlemen, how are you this morning and afternoon?

Blake Steele: Doing well. Thank you, Gerardo. How are things on your end?

Gerardo Del Real: Things are excellent. Glenn, how are you?

Glenn Catchpole: Very good. Good to be talking to you, I always enjoy it.

Gerardo Del Real: It's good to catch up again. A big congratulations is in order. The merger with URZ and Azarga is now complete. You and I, Glenn, have chatted in the past as to your background. Blake, this is our first time on air. I would love for you, before we go over all the exciting developments in the uranium space and everything going on with the company and how well positioned it is, I'd love for you to share a bit about your background to readers and listeners please.

Blake Steele: Yeah absolutely, Gerardo, and thanks for asking. I started my career with Deloitte in their audit and financial advisory practices. This was my first real exposure to the mining sector and where my interest for the space started to develop. Deloitte provided me with the opportunity to work with numerous mining companies across all sectors including uranium actually. From there I joined SouthGobi Resources which at the time was part of the Ivanhoe Mines Group.

While at SouthGobi we raised nearly $1 billion in capital to finance the development of our flagship mine and ramp up operations. After SouthGobi this is where I joined Azarga, and actually a lot of former Ivanhoe and SouthGobi colleagues are shareholders of Azarga today.

Gerardo Del Real: Excellent. Glenn, a brief, brief recap of your extensive career. You're going on four decades now in the uranium space, am I correct?

Glenn Catchpole: That is correct. A little over 40 years now in the uranium sector starting out as a well field engineer as a young engineer and steadily progressing up to Uranerz Energy Corp. and then on over to URZ Energy. It's been a great ride, always has its ups and downs with the way the uranium market is, but I've enjoyed it tremendously and I'm looking forward now to this opportunity to be with Azarga and moving this company forward to production one of these days.

Gerardo Del Real: Excellent. Now the premise of the merger, of course, was to consolidate uranium assets with the focus here in the U.S. That obviously right now seems to have been a brilliant move. Blake, I would like to get your take, and I know we talked about doing this towards the end, but I think it's important now with the news yesterday. I'd love to get your take on the latest in the uranium space, potential for tariffs. A lot of dialogue going on in the background with this administration. You have your finger on the pulse. I'd love your take on it.

Blake Steele: Yeah, I think this is absolutely one of the most significant items for the space. It's fresh off the press and has the potential to be a very significant catalyst for the United States uranium industry. And that is the Section 232 petition review that has been initiated. And that investigation has been initiated to study the effects of uranium imports on U.S. national security.

Looking at it, currently the United States produces less than 5% of its annual uranium consumption while nuclear energy accounts for 20% of the electrical grid. Ultimately, this investigation has the potential to create a two-tier market pricing system. Ultimately one global price for production destined for non-U.S. consumption. And two, a price for U.S. domestic production likely to be meaningfully higher. You hit the nail on the head, Azarga's asset suite with its U.S. focus is well positioned to take advantage of this, Gerardo.

Gerardo Del Real: It's a fascinating time. I'd like to talk about the merger and the team now that you have working together because it's quite an experienced and serially successful group. Glenn, of course, was CEO, is now Chairman of the company. Blake, you'll take over and continue I should say in the President and CEO role. But can we talk about how the two of you plan on working together and if you could share a bit about the team that you now have in place to move the flagship – and we'll talk about Dewey Burdock here in a bit – but moving the flagship forward.

Blake Steele: Yeah, absolutely. From my perspective, working with Glenn provides me with the opportunity to leverage off of Glenn's vast uranium experience and expertise. Together we have a larger network that will ultimately provide more opportunities for Azarga and our shareholders. How the deal came together, initial conversations started in 2017 about combining Azarga and URZ. We'd come across paths over the last few years, but in 2018 we realized that we had an opportunity to create the only pure play in-situ recovery focused uranium developer in the United States.

The merged company has in excess of 30 million pounds of measured and indicated resources and 8.7 million pounds of inferred resources, all located in the United States which is really important given the 232 initiative we just spoke about. The company's flagship asset, the Dewey Burdock project in South Dakota, is the highest grade, undeveloped in-situ recovery project in the United States and adding URZ's pipeline of assets, including Gas Hills, seemed to be a natural fit.

In terms of the team moving forward, Gerardo, you've already touched on Glenn's expertise. But the combined team will have more than 100 years of experience in the in-situ recovery space. That's going to include development, permitting and operational experience. We have a very strong board with a diverse skillset led by Glenn, as you mentioned. Glenn had great success building and ultimately selling Uranerz in the past.

Our COO, John Mays, has over 20 years of experience in the design, construction and operation of in-situ recovery mines in the United States and Kazakhstan. So, all in all we have a very strong team poised to advance our asset suite and unlock value for our shareholders.

Gerardo Del Real: Glenn, could you share your insights on the Dewey Burdock project? I know it's an asset that you think still has a lot of upside. It's an asset that's advanced stage. It's already received several key permits and I got to believe that, with the push going on in the U.S. here to secure domestic production of uranium, the permitting process will be somewhat more favorable than it was just a few days ago for Azarga. Tell me a bit about Dewey Burdock if you could please, Glenn.

Glenn Catchpole: The Dewey Burdock project is something that I've had my eye on for at least 8 years. Actually, in a former company I was with we made a play to try and joint venture or be a part of that project. That didn't go through, but I had a chance with due diligence to look in detail at what's there. It's sort of mind boggling. The amount of resource there, the grade of that resource, 0.25 on eight point some million pounds that are pretty much ready to go and part of the permitting. I'm so excited about being part of this group to bring that project into production and I'm confident it's going to be a low-cost producer in the U.S.

We've got the team in place as Blake has just mentioned. The board we have, I might want to just say a few words there, that I think we've got an extremely good functioning board, particularly one of our new board members, Sandra MacKay. She was on the board of Uranerz Energy Corp. on the Nichols Ranch project. She bring a lot to the table. She's a practicing attorney with a lot of experience in mining. I'm looking forward to now being in a position as the Chair to help move this thing along and with the dynamics of the board and how we can be the most efficient in what we do and help bring this project forward.

Gerardo Del Real: Fantastic. Blake, I mentioned that this is an advanced stage asset. It's already received several key permits. What's the permit status on Dewey Burdock right now?

Blake Steele: Right now, Gerardo, we're working towards finalizing the permitting process at Dewey Burdock. We have received the Nuclear Regulatory Commission license as well as the draft Environmental Protection Agency permits. And the state permits have been recommended for approval. There is one remaining contention being worked through on the Nuclear Regulatory Commission license, but we expect that to be resolved sooner rather than later.

I just want to touch on a couple of other points that I think are important with respect to the Dewey Burdock project and that's really its cost profile, as Glenn was talking about. The project is forecast to have first quartile cash costs and requires only $27 million of CapEx to achieve initial production. We are also very excited about the growth potential of the Dewey Burdock resource. We are currently working on a resource update using newly-identified mineralization that will nearly double the number of mineralized intercepts at Dewey Burdock.

The additional mineralization is contiguous with the existing in-situ recovery resources at Dewey Burdock. And 100% of that falls within the existing Nuclear Regulatory Commission license boundaries. So from our perspective, that's a very exciting update that we're working towards. And we're aiming to announce that resource update later this quarter. On the back of that updated resource, we will be completing an updated Preliminary Economic Assessment and we are expecting improved project economics due to the increased scale of the project there.

Gerardo Del Real: Excellent. Can you explain the ISR process and why that contributes to such low cost? I believe ISR projects are going to be the first to capture the attention of the markets in a general sense when the retail part of the market rushes back in because of the cost profile, frankly. Can you explain that process a bit? I'll let either you or Glenn take that there.

Blake Steele: Yeah 100%, Gerardo. You're right, again. 100% of it comes down to their cost profiles. I'd like to use an example of Cameco which was a little more of a secret I'll say before the McArthur River suspension. But, ultimately looking at Cameco, the grades of their assets in the Athabasca Basin are in excess of 150 times the grades of their in-situ recovery project. Yet, their ISR projects have lower cost profiles.

In-situ recovery projects are the lowest cost projects in the uranium space, and this is a very important distinction to make. Almost 50% of today's uranium is produced using in-situ recovery mining. Looking beyond that, in-situ recovery projects also provide greater operational flexibility and give companies like ours the opportunity to ramp up in changing uranium environments. Projects can ultimately ramp up and be built in a matter of months as opposed to 5 or 10 years, with significantly less upfront CapEx which ensures that projects in the advanced permitting stage, such as Dewey Burdock, are well positioned to take advantage of the upcoming uranium bull market.

I think having the highest grade undeveloped in-situ recovery project in Dewey Burdock really helps set us apart. And to some of the main reasons as to why that cost profile is so much more attractive than say conventional mines, is you don't have that open pit. You're not excavating material. You don't have a big truck and shovel infrastructure. Or you're not sinking mine shafts and going underground. I agree, in-situ recovery projects will be the first to move in this market.

Gerardo Del Real: Perfect. Glenn, there's also, aside from the flagship, there's an additional pipeline of high-quality exploration assets. Can you speak to those just a bit?

Glenn Catchpole: Well before we leave that last question and comment by Blake, another thing to point out in terms of why the costs can be so attractive for ISR is the number of employees in a mine. A conventional mine and mill can have 300-400 employees. A conventional ISR mine would typically have anywhere from 50-80 employees. That's a huge difference and of course, personnel costs and benefits and so forth are a big part of the expense of any operation.

Gerardo Del Real: The insight's fantastic. That's a great point.

Glenn Catchpole: As far as looking forward to what else might be out there and, as you probably know, with the merge of the companies now we have projects in Wyoming, most significant of which at this time are located in the Gas Hills. We've studied that. We've released some information on it of a technical nature. The Gas Hills was conventionally mined starting in the '50s on through the '60s up into the '80s with pricing going extremely bad, the spot price, in the early '80s.

All of the U.S. production was shut down on the conventional side. Only ISR mines were operating. But, up to that point Gas Hills was the most prolific uranium district in Wyoming and with the exception of something in New Mexico, some projects there. Something like 130 million pounds were extracted. And when those mines shut down out there in the Gas Hills they didn't do it because they ran out of uranium. They did it because of the cost. They could not make a profit at the spot prices that then prevailed.

My point with that is that there's still a lot of pounds out there in the Gas Hills. We think as we move forward and what happens with the market, that's going to be on our radar to bring into production at some point.

Gerardo Del Real: That's a lot of optionality. You have the grade with the flagship with Dewey Burdock. You have size. You have exploration upside there. The historic production obviously with Gas Hills in Wyoming, it's a good right hand to have. Blake, any thoughts on the exploration assets?

Blake Steele: I think Gas Hills is a very exciting exploration asset. We're currently working through various studies to determine the future impact of ISR development options at Gas Hills. I think we're very excited today. The work that's been done shows that a large majority of those resources that are defined in the Gas Hills projects can be converted into ISR amenable resources.

So, I think it's a great compliment to the rest of our projects. The one other thing I would touch on is Dewey Terrace, just in terms of exploration pipeline.  Dewey Terrace is situated directly adjacent to Dewey Burdock on the Wyoming side of the border. And through review of historical data, we've identified 259 mineralized drill holes at Dewey Terrace. So, Dewey Terrace could yet be another potential satellite project to Dewey Burdock and we're continuing a review of that project information with the goal of ultimately identifying a uranium resource there as well.

Gerardo Del Real: The two of you have an exciting rest of the year. There's a resource and PEA update. Obviously we're working on getting the last of those permits for Dewey Burdock. I have to ask because you have a deep network, the experience that Glenn, yourself and the board brings obviously brings a deep network of contacts. Are you looking at other assets and is it a North American based focus?

Blake Steele: Definitely a North American based focus, Gerardo. Specially U.S. focused in-situ recovery play that we're trying to create here. We're always open to expanding our project pipeline. The challenge is finding high-quality assets, as we all know. I think, again, this vehicle gives us a more solid foundation to acquire further assets and continue to grow.

Gerardo Del Real: Excellent. Gentlemen, thank you so much for your time. Glenn, is there anything else that you'd like to add or Blake here before we go?

Glenn Catchpole: Well I might just chime in here and in your write-up it might be appropriate to stick this in earlier, but the question about Blake and I working together in part of this overall team.  I think Blake with his mining investment experience and investor relations and auditing and looking at a lot of different companies and how things can go good and not good and my background on the operational side is going to work very well together. I'm looking forward to it. We're going to be lean and efficient. We both have the same thoughts on where we want the company to go and I'm looking forward to a relationship that we'll have and bring Dewey Burdock and others into production.

Gerardo Del Real: It's an exciting team. You have nearly 40 million pounds across all categories. You have a market cap roughly equivalent to $40 million Canadian right now, so I think the upside is clear. Obviously the geopolitical situation is as favorable for companies positioned in the U.S. as I've seen, possibly ever. Blake, anything else you'd like to add?

Blake Steele: You know I think just all things considered, Gerardo, the next 12 months look very exciting for our business. I think there is one other potential catalyst coming for the market and that will be McArthur River going into care and maintenance beyond the previously announced 10-month suspension. I would expect to see an announcement on this before the end of the quarter. So that's something else that we're waiting for basically.

Gerardo Del Real: Fun times. There's a lot of people out there way smarter than me that have called for a uranium bull market year after year for the last 5 years. I actually believe we're in the first inning of a new uranium bull market and we know there's a violence to the upside, so it's starting to get exciting out here guys.

Blake Steele: Absolutely. Thanks for your time, Gerardo.

Gerardo Del Real: Thanks again, Glenn. Thank you, Blake. We'll chat again soon.

Glenn Catchpole: Yes, thank you very much, Gerardo. That was great.

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