Azarga Metals Is Exploring An Interesting Copper / Silver Project





In my last Letter I mentioned that I expect a significant run in the industrial metals in the coming years, most likely after a strong correction, due to positive supply & demand fundamentals. I mentioned that I expect this to drive demand for related green field mining projects. In this Letter we take a look at Azarga Metals which holds an interesting copper-silver project in Eastern Russia.

Azarga Metals is a Canadian based junior mining explorer & developer. Its stock trades primarily on the TSX Venture Exchange (symbol: AZR). Azarga owns 60% of the Unkur copper-silver project in the Zabaikalsky Region of Eastern Russia along with the right to acquire the remaining 40% in the future. The maps in the following slide provide more details on the location of Unkur:

 Click to enlarge          Source: Azarga Metals Investor Presentation; used with permission

Unkur Background

Soviet geologists discovered Unkur in 1962 and extensive exploration work was conducted there from 1969 to 1971 and from 1975 to 1978. 6,703 meters of drilling and 39,668 cubic meters of trenching by the Soviets demonstrated significant copper and silver mineralization about 20 to 50 meters thick, down to a depth of 350 meters, and over a strike length of about 3 miles (4 to 6 km). The deposit is interpreted to be a shallow stratiform sediment hosted copper-silver deposit. Many of the largest copper deposits in the world, such as KGHM’s Rudna (Poland), are of this type.

Soviet geologists completed multiple resource estimates (1972, 1979, and 1988) under their various classification systems. In 2014, geologists at the Central Geological Research Institute (TsNIGRI) used the same data to derive a total resource of 20.5 million tons, grading .85% copper and 78 g/t silver, which equates to roughly 174,000 tons of copper and 56 million tons of silver, under the Russian resource classification system of 1980. After scanning the definitions of the Soviet classification system in the Unkur technical report, it seems that this could, at best, be a rough equivalent to an inferred resource under current NI 43-101 standards. For those who are not familiar with National Instrument (NI) 43-101, it is the Canadian mineral resource classification model, which is the current standard for most mining companies.

Azarga had the advantage of going into Unkur knowing that a significant copper and silver resource exists there, which has enabled them to save a lot of time and expense normally involved in preliminary exploration work. Their initial focus has revolved around drilling, trenching, sampling, and surveying in order to establish a NI 43-101 compliant resource estimate (first phase exploration program). The idea is to establish a resource estimate, based solely on their own exploration work, inline with current standards and then move on to a Preliminary Economic Assessment (PEA) to outline an estimate of the potential economics of mining the deposit. 

Exploration Work

Azarga acquired Unkur on May 31, 2016 after the property had set idle since 1978. Over the last 9 months, Azarga has completed the first phase of its exploration program which included 4,600 meters of drilling. Drill results have clearly confirmed the conclusions that the Soviet geologists came to. The following map shows the holes that have been drilled with the respective results:

Click to enlarge          Source: 2016 Year End MMD&A Report; used with permission

As can be seen here, most of the better results were from drill holes in the northern end of the target area, such as AM-001 where they drilled 40 meters @ 66 g/t silver and .74% copper and AM-003 where they drilled 15 meters @ 84 g/t silver and .79% copper. These grades of mineralization are inline with the results the Soviets had. 

For Unkur to move from just a deposit to a producing mine, sizable tonnage will have to be established in order to achieve the economy of scale necessary for a solid rate of return. It has the potential to be a valuable asset if average grades of in the range of .75% copper and 50 to 90 g/t of silver can be established over a substantial area. These drill holes are spaced apart by about 400 meters running north/south and by about 200 meters running east/west so this could be possible.

Next Steps

The next milestone for Azarga is a NI 43-101 resource estimate, which is expected to be published within several weeks. The company is hopeful that this will demonstrate a sizable resource and attract more investor attention. The results of this initial estimate will be important for the determining the ability of Azarga to raise more capital in the near term. If all goes well, the next step will be phase 2 exploration work which would mainly include additional infill drilling to upgrade the confidence behind the resource estimate and step-out drilling in prominent targets generated by the geophysical data. Then the company plans on hopefully upgrading the resource estimate and producing a Preliminary Economic Assessment (PEA) by the end of this year. 2017 will clearly be a pivotal year for Azarga. 

Strategic Conclusion

I am going to break down my strategic conclusion into pluses and minuses. Let’s start with the pluses.


  1. The greater region where Unkur is located hosts many copper deposits, including the giant Udokan copper deposit only about 15 miles south. Udokan is the second largest undeveloped copper deposit in the world. The Baikal Mining Company, 100% owned by Metalloinvest, is currently developing Udokan and it is slated to begin producing in 2021. Notably, this massive operation will mean ongoing upgrades to the infrastructure of the surrounding region. Unkur already has decent infrastructure but this is a further positive that could help bring down costs for a potential mining operation.
  2. Director and CEO of Azarga Metals, Dorian (“Dusty”) Nicol, is a seasoned geologist with a long track record of results. He is running a very lean operation with almost all company’s cash going into exploration. He has quickly positioned the company to (almost) having an established resource estimate with very minimal shareholder dilution. If all goes reasonably well, it wouldn’t take too much more to get to a PEA and then a possible mine decision.
  3. Azarga’s market capitalization is less than 15 million Canadian dollars. If the company is able to successfully establish a sizable maiden resource and a high return PEA, shareholders could realize significant upside.
  4. At this stage, the economic value of the mineralization is relatively balanced between copper and silver. Depending upon future market prices, the company may have the flexibility to focus on mining one zone over another to take advantage of well established price trends. 


  1. My number one concern for the Unkur project is the environmental situation, namely water management, and the limitations it could place on establishing a workable mine on what could be a very sizable resource. Some of the better drill results are very close to the Unkur River (what Americans would call a “stream”) and the larger Kemen River runs through the eastern portion of the land package. At the very least, the proximity of these waterways could impose additional costs on the project. All this being said, I am not qualified to make an official judgment. I just look at maps and pose practical questions, such as does the Kemen River experience spring flooding that could pose problems for an open pit mine?
  2. My other concern is that the company may not be able to easily raise additional capital if the initial resource estimate undershoots expectations. 

Overall, I think we have a high risk / high return situation here at the current valuation. There are few copper/silver juniors out there and Azarga Metals is definitely one to keep an eye on in 2017.


Joshua S. Hall, ChFC



I do not personally own shares of Azarga Metals, however, it is presently a very small holding in some client portfolios that I manage, through which most of my salary is derived.

The True Vine Letter is a publication of True Vine Investments, the investment advisory business of Joshua S. Hall, ChFC, and a Registered Investment Advisor in the U.S.A. The information presented is for educational purposes only and should not be regarded as specific financial or investment advice nor a recommendation to buy or sell securities or other investments. It does not have regard to the investment objectives, financial situation, and the particular needs of any person who may read this Letter. True Vine Investments will not be held responsible for the independent financial or investment actions taken by readers. All data presented by the author is regarded as factual, however, its accuracy is not guaranteed. Investors are encouraged to conduct their own comprehensive evaluation of financial strategies or specific investments and consult a professional before making any decisions.

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