Exclusive CEO interview Dusty Nicol, Azarga Metals Corp

The following exclusive interview of Dorian (“Dusty”) Nicol was conducted by phone and email in the week ended August 12th. Nicol is Director, President & CEO of Azarga Metals Corp (TSX-V: AZR). [NOTE {Azarga Metals Corp is separate and distinct from Azarga Uranium}]. His vast mining experience is difficult to capture in a succinct bio, but here it is.
Dorian (“Dusty”) Nicol, Director, President & CEO

• 40-years international experience in exploration and mining
• Successful track record of managing exploration and development projects worldwide
• Member of the American Institute of Professional Geologists, a Fellow of the Society of Economic Geologists, a Fellow of the Australasian Institute of Mining and Metallurgy (AusIMM) and Registered Member of the Society of Mining Engineers
• B.Sc. in geology from Massachusetts Institute of Technology (M.I.T) and a Master’s Degree in geology from Indiana University and
• is fluent in six languages.

Nicol told me (as if it was no big deal) that he’s worked in over 60 countries, including several hosting Soviet era deposits and resources. He feels that the junior mining sector has seen the bleakest days of the cycle and is excited to be leading an early-stage copper-silver company in Russia. Nicol is especially optimistic about Azarga Metals Corp (TSX-V: AZR) (“AM Corp”) because the Company appears to be sitting on a large, high-grade, drilled and defined Soviet Era mineral deposit. I say, “appears to be,” because the mineral deposit is not NI 43-101 compliant.

However, if historical drilling and other important exploration data, can be validated, Nicol feels AM Corp could be sitting on a world-class copper-silver resource. Armed with C$2 million in cash, drilling is well underway. Results are expected throughout the 4th quarter.

The views, facts and opinions expressed in the interview are entirely those of Mr. Dorian Nicol.



Please tell readers about your mining experience and why you became CEO of Azarga Metals Corp.

I’m an exploration geologist with over 40 years experience in more than 60 countries, mostly exploring for copper, gold & silver deposits. I speak six languages and I’m comfortable working in most places. I have a B.Sc. in Earth Science from Massachusetts Institute of Technology (M.I.T) and a M.A. in geology from Indiana University. In Papua New Guinea (“PNG”), during the early 1980s, I helped shape the concept that epithermal precious metal deposits occurred at the tops of porphyry copper systems. I led several of reconnaissance teams that explored the Highlands and smaller islands off PNG. This led to the discovery of several deposits including Kainantu and Wild Dog.

Since then, I’ve worked around the world, on every continent except Antarctica. Some of the more interesting projects I managed were 1) running the first exploration program by a foreign company in Brazil, when that country liberalized its investment laws, and 2) putting together a program for Anglo American to explore for gold along the East African rift. In 40 years, I’ve been exposed to a wide variety of ore deposits. The deposit I’ve been tasked with running stacks up quite well against dozens of others I’ve been an integral part of.

I think my greatest success as an explorationist was at the Jerritt Canyon Mine in Nevada, where my program discovered over 1.5 million ounces of gold at an average discovery cost of just US$18/oz. Although my focus is exploration geology, I have also built and managed operating mines and taken projects through Feasibility Studies, so I know what it takes to turn a mineral deposit into an economic ore body.

Please describe Azarga Metals Corp to readers unfamiliar with the story

Azarga Metals Corp [TSX-V: AZR], formerly known as European Uranium Resources. Our principal asset is a 60% interest – with ability to increase that to 100% – in the Unkur Copper-Silver project (“Unkur”) in eastern Siberia, Russia. Unkur is a high-grade deposit that was drilled and defined during the Soviet era, and demonstrated room to grow both along strike and down dip. So, I perceive the geologic risk as relatively low for a company like ours. We are a lean, highly focused company. Non-executive Chairman Alex Molyneux and I believe in minimizing corporate overhead, and spending as much as possible in the ground.

AM Corp just began its first phase drill program at Unkur, with an objective of drilling 8 to 10 holes totaling about 3,000 meters. We may increase that to 4,200 meters depending on results. The goal is to verify historical drill results, to form the basis for a maiden NI 43-101 compliant mineral resource estimate. We hope to deliver a maiden resource in 1q 2017. Our objective beyond that will be to continue verifying and expanding the mineralization so that we can fast-track the project through a third-party Preliminary Economic Assessment (“PEA”) and, if warranted, continue thru a Feasibility Study (“FS”).

Can you tell us more about the Unkur Copper-Silver Project?

Yes, of course. The Unkur exploration license comprises about 54 square kilometers in eastern Siberia. Access and infrastructure is quite good, with a commercial airport running flights to Chara, 25 kms away. A main railway line providing transport to China is only about 7 kms from our property. A power line runs across the license area.

Unkur is a sediment-hosted stratiform copper-silver deposit. This means its geometry is like the layer of frosting in a layer cake. The mineralized horizon has been traced, from historic drill holes, trenches and outcrop, for a length of about 5 kms. It was drilled during the Soviet era. My experience from other deposits I’ve worked on is that Soviet era data are usually fairly reliable. Still, we will be verifying the data with independent drilling and sampling to generate a maiden NI 43-101 mineral resource estimate.

Eight historic diamond drill holes returned copper samples with grades greater than 0.6% Copper (“Cu”). The average length of these intersections is 13 meters at an average grade of 0.78% Cu. The average silver (“Ag”) grade is 68.3 g/Metric tonne (“Mt”). At spot prices, that equates to nearly, “US$ 80/Mt rock.” A key objective of our drilling will be to get a better handle on copper grades and understand how the distribution of silver is related to the copper mineralization. Preliminary metallurgical testing indicates solid copper and silver recoveries. {See March 2016 SRK Technical report}



Soviet era resource estimates have their own arcane classification system, which does not relate well to the NI 43-101 categories of Inferred, Indicated & Measured. However, some of the historic Soviet, “prognostic” estimates range as high as 138 million Mt at 0.78% Cu. Obviously, I don’t want to hang my hat – or my reputation! – on a historic, unconfirmed, non NI 43-101 compliant estimate…but, we feel it provides a rough idea as to the order of magnitude of deposit we’re after. For the purposes of exploration planning and budgets, we have a conceptual target of 60 to 80 million Mt Cu equivalent. Our initial goal is to delineate 20 to 40 million Mt, at grades consistent with historical values.

Some may find the ownership of your primary asset confusing. Why is the Company structured with a put/call option on 40% of the Unkur Copper-Silver Project?

Good question, I know it sounds confusing at first blush, but it’s actually rather simple and very fair to both parties. 60% is what we were able negotiate with project vendor, Azarga Metals (“AM”) [NOTE: {Dusty’s Company is Azarga Metals Corp., and the vendor is Azarga Metals}]. But, obviously, we needed a clear path towards 100% ownership. So, our Agreement provides for a call on the remaining 40%, while AM has the right to put its 40% interest to us. So, one way or the other, we end up with 100%, with the valuation of the 40% stake to be negotiated at the time of exercise. We have seen this type of arrangement work very well with other companies and projects.

Who are the owners of the 40% stake? Will acquiring that stake entail equity dilution down the road?

Yes, the vendor Azarga Metals, is a private company holding 40% of Unkur. It’s owned by Alex Molyneux and two Russian partners. Since Alex is a shareholder in both AM and AM Corp, I feel that obtaining 100% of Unkur will not be an issue. Regarding funding, it’s too early to tell how we will finance the eventual consolidation of the remaining 40% interest. It could well require issuing more shares. However, we would not do so unless we felt we were issuing shares for appropriate value. So, I view a potential issuance of shares as accretive rather than dilutive.

Do you get pushback from potential investors regarding the location of the project? If so, how would you characterize the risk of operating in Russia?

Sure, we get pushback on that, but it’s really not unlike many parts of the world I’ve worked in. Some are comfortable with this risk, others not so much. We hope prospective investors keep an open mind as they evaluate our Company. Look, you NEED to have a strong local team that knows the rules and has connections to get things done. In Russia, this is elevated to an art form! On the positive side, infrastructure is very good, and while Russia has a bad reputation in some respects, there’s not a bad track record for foreign exploration companies doing the kind of work we’re doing. And, with oil prices down by 60%, Donald Trump’s good friend Vladimir Putin needs all that foreign investment he can get!

According to the most recent, “Fraser Institute Annual Survey of Mining Companies, 2015,” Russia ranks in the top quartile for, “Best Practices Mineral Potential index,” and in the 2nd quartile of the category, “Investment Attractiveness.” Russia is higher ranked than Colombia, Brazil & South Africa, and ahead of 8 European countries. Russia badly needs foreign investment, and this region in Russia is earmarked for development. We feel that permitting risk in Russia is less than that of many parts of the world, (including parts of North America!)
Russia is where the minerals are, there’s no way around it. NOTE: {Russia ranked 2nd of world’stop 5 richest mining countries}.

Does an investment in Azarga Metals Corp. require a bullish copper/silver price assumption? Would the project be viable at $2.25/lb. Cu and $20/oz. Ag?

The short answer is: NO, one doesn’t require a bullish view of copper-silver. I have managed enough projects and mines to know that, “grade is king.” My attraction to Unkur is its grade and potential to be both a large and high-grade deposit. Although it’s way too early to speculate on cost metrics, my instincts tell me that the $2.25/lb. Cu and $20/oz. Ag would be economically viable. In fact, Alex and I would not be exploring this deposit if we thought otherwise. However, we won’t know for sure until we deliver a PEA early next year.

This is an investment in a highly prospective project managed by an excellent technical team on the ground that can take the project at least through Feasibility. We would all benefit from higher copper and silver prices – and we do expect them – but we’re not relying on that for a successful project.

Although, obviously, pre-PEA it’s too early to tell, are there any indications that suggest that operating costs could be competitive?

Again, “grade is king!” $2.25/lb. Cu and $20/oz. Ag, at grades of 0.78% Cu & 68.3 g/Mt Ag translates to roughly 1.75% Cu equivalent. We think that the combination of grade, mining conditions, location and infrastructure, plus indications of good metallurgy, suggest that Unkur should be competitive on operating costs. We expect a more in depth discussion with readers on this topic in about a year’s time.

It appears that you have a fairly clean capital structure, can you give readers the latest snapshot?

Yes, unlike most junior miners, our capital structure is quite clean. We closed a $2 million financing of shares, (no warrants), which certainly helped. Right now we have 43 million shares outstanding, and about 45 million fully-diluted. That includes 2 million incentive stock options granted to management and directors at $0.20/share, and 500,000 restricted share units.

How long might Azarga Metals Corp’s cash balance last?

We feel we’re funded for up to 18 months with the cash we have, depending on how aggressive we get on drilling. That decision will be made in the context of drill results and market conditions. It’s always a dilemma in my job; we want to make the money last as long possible, and we also want to advance the project. This is an ongoing calculus that Alex and I, as well as our Board and management team, are in frequent discussions about.

Please describe upcoming catalysts for the remainder of the year. Are all of the corporate initiatives funded?

Catalysts for this year are simple: drill results and a concerted effort to support our thesis that Unkur is a massive Cu-Ag deposit. Hopefully, strong drill results will better alert the market of AM Corp’s potential. We believe we’re fully-funded thru 2017. But, this is not to say we would not opportunistically raise additional capital. We are not planning to at this time, but I’ve learned never to close the door on these things.

To the extent that you feel an investment in AM Corp’s shares offer compelling risk/reward, how do you articulate that thesis?



Very simple; we are valued like a green fields early exploration company. However, Unkur has already been partially drilled and found to host strong Cu equivalent grades on a large, historical, Soviet era resource. That alone makes the geological risk lower than in many projects around the globe. The reward part of the equation is the that we strongly believe the valuation of AM Corp would increase if/when we demonstrate the deposit is tangible, sizable and high-grade. Evidence of this could come with drill results, but confirmation would probably need to wait for a PEA. NOTE: {Data obtained by AM Corp is not, and never was, NI 43-101 compliant}.

Are there misconceptions about Azarga Metals Corp that you would like to address?

Yes, thanks for asking. There are two, which I already touched on. To reiterate, Unkur is not a green fields exploration project, it’s a past (Soviet era) drilled and demonstrated resource. This is key to our contention that we are on a steep slope of the value creation curve. Also, there’s the perception that working in Russia is especially risky. For some this might be a non-starter. But, if our deposit were in Chile or Peru, our market cap would probably be a multiple of what it is today. High risk, high reward potential. I can tell you one thing with certainty, I would rather be working in Russia than in A LOT of other places I’ve lived and worked in.

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