Denison Mines Corp. Reports 2010 Results
TORONTO, ONTARIO -- (Marketwire) -- 03/10/11 -- Denison Mines Corp. ('Denison' or the 'Company') (TSX: DML)(NYSE Amex: DNN) today reported its financial results for the three months and year ended December 31, 2010. All amounts in this release are in U.S. dollars unless otherwise indicated. For a more detailed discussion of the Company's financial results, see management's discussion and analysis ('MD&A'), a copy of which is attached to this release.
Financial Highlights
-- Revenue was $39.2 million for the three months and $128.3 million for
the year ended December 31, 2010.
-- Net loss was $12.3 million or $0.04 per share for the three months and
$14.2 million or $0.04 per share for the year ended December 31, 2010.
-- Cash flow from operations was $7.0 million for the three months and
$35.6 million for the year ended December 31, 2010.
Operating Highlights
-- Production for the quarter totaled 234,000 pounds of uranium oxide
('U3O8') and 391,000 pounds of vanadium blackflake ('V2O5'). For the
year, production totaled 1,442,000 pounds U3O8 and 2,347,000 pounds
V2O5.
-- Uranium sales in the quarter were 449,000 pounds U3O8 at an average
price of $49.97 per pound and for the year were 1,839,000 pounds U3O8 at
an average price of $47.67 per pound.
-- Vanadium sales in the quarter totaled 314,000 pounds of V2O5 at an
average price of $6.34 per pound and ferrovanadium ('FeV') sales totaled
386,000 pounds at an average price of $12.70 per pound. Vanadium sales
for the year totaled 541,000 pounds of V2O5 at an average price of $6.44
per pound and FeV sales totaled 1,003,000 pounds at an average price of
$13.40 per pound.
-- At December 31, 2010, the Company had 87,000 pounds U3O8 and 679,000
pounds V2O5 and 11,000 pounds FeV in inventory available for sale. Based
on spot market prices at December 31, 2010, this inventory had a value
of $9.8 million.
-- The Company received initial estimates of mineral resources at Zones A
and B at the Phoenix deposit at the Wheeler River project in the
Athabasca Basin in northern Saskatchewan by SRK Consulting (Canada)
Inc., which was retained to independently review and audit the resources
in accordance with the requirements of NI 43-101. The report estimated
indicated mineral resources at Zone A containing 35.64 million pounds
(the Company's share, 21.38 million pounds) at an average grade of 18.0%
U3O8 and inferred mineral resources at Zone B containing 3.81 million
pounds (the Company's share, 2.29 million pounds) at an average grade of
7.3% U3O8 based on a cut-off grade of 0.8% U3O8. Denison is encouraged
by these estimates for the potential of Wheeler River in terms of its
high grade and its size.
-- The Company began development of its Pinenut mine in Arizona in the
fourth quarter. Production is expected to commence in 2012.
-- In December 2010, the Company closed an underwritten private placement
of 25,000,000 special warrants, at a price of CDN$2.45 per Special
Warrant, and 1,400,000 special warrants issued on a 'flow-through' basis
under the Income Tax Act (Canada), at a price of CDN$3.00 per FT Special
Warrant. The offering raised aggregate gross proceeds for the Company of
CDN$65,450,000. Each special warrant and flow-through special warrant
entitled the holder thereof to receive one common share upon exercise.
On December 20, the Company filed and obtained a receipt for its final
short form prospectus qualifying for distribution the common shares
issuable upon the exercise of the special Warrants and the flow through
special warrants. The issuance of this receipt resulted in a deemed
exercise of all of the special warrants and flow through special
warrants for no additional consideration, and as a result, an aggregate
of 26,400,000 common shares were issued to holders of the special
warrants and flow through special warrants on December 23, 2010.
-- Subsequent to the quarter end in February 2011, the Company entered into
a Bid Implementation Agreement with White Canyon Uranium Limited ('White
Canyon'). Under the agreement, the Company has agreed to make a takeover
offer to acquire 100% of the issued and outstanding shares of White
Canyon at a price of AUD$0.24 per share for total consideration of
approximately AUD$57,000,000. Denison's offer is subject to a number of
conditions including the requirement that Denison acquire a relevant
interest in at least 90% of White Canyon's share capital during or by
the end of the offer period. The bidder's statement to White Canyon's
shareholders is expected to be available before the end of March 2011.
-- In February 2011, the Company entered into an agreement with a syndicate
of investment dealers who have agreed to purchase 18,300,000 common
shares of the Company at a purchase price of CDN$3.55 per common share
for aggregate gross proceeds of CDN$64,965,000. The offering is
scheduled to close on March 15, 2011.
Financial Summary
Three Months Ended Year Ended
December 31 December 31
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2010 2009 2010 2009
Revenue ($000s) $ 39,232 $ 31,052 $ 128,320 $ 79,170
Net Loss ($000's) (12,297) (36,127) (14,235) (147,012)
Loss Per Share ($) (0.04) (0.11) (0.04) (0.51)
Cash Provided By (Used By)
Operations ($000's) 7,049 5,615 35,551 (42,442)
Revenue
Uranium sales revenue for the fourth quarter was $22,760,000 from the sale of 449,000 pounds U3O8 at an average price of $49.97 per pound. Uranium sales for the same period in 2009 were 548,000 pounds U3O8 at an average price of $44.14 per pound resulting in revenue of $24,800,000.
Uranium sales revenue for the year ended December 31, 2010 totaled $87,978,000. Sales were 1,839,000 pounds U3O8 at an average price of $47.67 per pound. For the year ended December 31, 2009, uranium sales revenue was $59,889,000 from the sale of 1,127,000 pounds U3O8 at an average price of $51.17 per pound.
During the fourth quarter the Company sold 314,000 pounds of V2O5 at an average price of $6.34 per pound and 386,000 pounds of FeV at an average price of $12.70 per pound. In the fourth quarter of 2009, the Company sold 11,000 pounds of V2O5 at an average price of $6.00 per pound and 142,000 pounds FeV at an average price of $10.96 per pound. Total vanadium sales revenue for the fourth quarter 2010 was $6,896,000 compared to $1,617,000 in the fourth quarter of 2009.
During the year ended December 31, 2010, the Company sold 1,003,000 pounds of FeV at an average price of $13.40 per pound and 541,000 pounds V2O5 at an average price of $6.44 per pound. Total vanadium sales revenue was $16,934,000. During the year ended December 31, 2009, the Company sold 520,000 pounds of V2O5 at an average price of $3.73 per pound and 229,000 pounds as FeV at an average price of $11.09 per pound. Total vanadium sales revenue was $4,480,000.
In 2010, Denison processed third party ore at its White Mesa mill under a toll milling agreement. Revenue from toll milling totaled $4,963,000.
Revenue from the environmental services division for the three months and year ended December 31, 2010 was $4,221,000 and $15,492,000 compared to $3,985,000 and $12,226,000 in the same periods in 2009. Revenue from the management contract with UPC for the three months and year ended December 31, 2010 was $487,000 and $2,576,000 compared to $636,000 and $2,522,000 in the same periods in 2009.
Operating Expenses
Canadian Operations
The McClean Lake joint venture produced 1,731,000 pounds U3O8 for the year ended December 31, 2010 compared with 3,609,000 pounds U3O8 for the year ended December 31, 2009. Denison's 22.5% share of production totaled 389,000 pounds for the 2010 period and 812,000 pounds for the 2009 period. The feeding of ore to the McClean mill was completed in June and the mill was placed on stand-by in August.
Canadian production costs(1) for the year were $30.63 (CDN$31.56) per pound U3O8 compared to $27.51 (CDN$31.41) per pound U3O8 for 2009.
Inventory available for sale from Canadian production was 19,000 pounds U3O8 at December 31, 2010.
U.S. Operations
At the White Mesa mill, production during the fourth quarter totaled 229,000 pounds U3O8 and 391,000 pounds V2O5 and totaled 1,053,000 pounds U3O8 and 2,347,000 pounds V2O5 for the year ended December 31, 2010.
At December 31, 2010, a total of 92,800 tons of conventional ore was stockpiled at the mill containing approximately 369,000 pounds U3O8 and 1,732,000 pounds V2O5. The Company also had approximately 392,000 pounds U3O8 contained in alternate feed material stockpiled at the mill at December 31, 2010.
Production costs(1) at White Mesa for the three months ended December 31, 2010 were $39.30 per pound U3O8 and for the year ended December 31, 2010 were $38.46. Production costs were $32.66 per pound U3O8 in the three months ended December 31, 2009 and $60.33 for the year ended December 31, 2009.
Inventory available for sale from U.S. production was 68,000 pounds U3O8, 679,000 pounds V2O5 and 11,000 pounds FeV at December 31, 2010.
Other
Operating costs for the three months and year ended December 31, 2010 include recoveries of $82,000 and $13,191,000 respectively relating to the change in net realizable value provisions on the Company's uranium and vanadium inventory. For the three months and year ended December 31, 2009 operating costs include write-downs of $6,291,000 and $3,712,000 respectively relating to the change in net realizable value provisions on the Company's uranium and vanadium inventory. Operating costs also include expenses relating to DES amounting to $4,189,000 for the three months and $14,063,000 for the year ended December 31, 2010 compared to $3,886,000 and $11,432,000 respectively for the same periods in 2009.
Mineral Property Exploration
Denison is engaged in uranium exploration, as both operator and non-operator of joint ventures and as operator of its own properties in Canada, the U.S., Mongolia and Zambia. For the three months ended December 31, 2010 exploration expenditures totaled $1,547,000 and $7,526,000 for the year ended December 31, 2010 as compared to $2,553,000 and $10,120,000 for the three months and year ended December 31, 2009.
A majority of the exploration expenditures during 2010 were spent in the Athabasca Basin region of northern Saskatchewan. Denison is engaged in uranium exploration as part of the AREVA Resources Canada Inc. ('ARC') operated McClean and Midwest joint ventures, as well as on 29 other exploration projects including the Company's 60% owned Wheeler River project. Denison's share of exploration spending on its Canadian properties totaled $1,157,000 of which $1,135,000 was expensed in the statement of operations for the three months ended December 31, 2010 and totaled $6,038,000 of which $5,945,000 was expensed in the statement of operation for the year ended December 31, 2010. For the three months ended December 31, 2009, Canadian exploration spending totaled $2,330,000 of which $2,297,000 was expensed and totaled $8,330,000 of which $7,726,000 was expensed for the year ended December 31, 2009.
Liquidity
The Company had cash and cash equivalents of $97,554,000 at December 31, 2010. The Company has in place a revolving credit facility of $60,000,000. The facility expires on June 30, 2011. Bank indebtedness under the facility at December 31, 2010 was nil; however, $19,816,000 of the line was used as collateral for certain letters of credit.
Outlook for 2011
Denison's uranium production is expected to total 1.2 million pounds of U3O8 from ore in stockpile and from the Beaver, Pandora and Arizona 1 mines and production from the alternate feed circuit at the White Mesa Mill in the United States. Vanadium production is projected to total approximately 2.2 million pounds of V2O5. The White Mesa mill is anticipated to continue processing conventional ore during most of 2011, except for scheduled maintenance shutdowns. Production of alternate feed material will continue throughout 2011. The cash cost of production is expected to average approximately $43.50 per pound of U3O8 net of vanadium credits. The cash cost per pound reflects the impact of an increase of over 200% of the cost of sulphuric acid as compared to 2010. Capital expenditures on the mines and mill facilities are estimated at $9.7 million.
Uranium sales are forecast to be approximately 1.3 million pounds of U3O8 of which just over 500,000 pounds will be sold into long term contracts and the remainder will be sold on the spot market. Vanadium sales are projected to be 2.8 million pounds V2O5 in 2011.
Denison's business development activities include advancement of its existing development stage projects and exploration projects and the search for new potential acquisitions. These activities, as part of its Five Year Business Development Plan, are aimed at increasing Denison's sustainable uranium production to at least 10 million pounds per year by 2020.
In 2011, Denison will participate in exploration programs in Canada and the United States. The total budget for these programs will be $15.0 million of which Denison's share will be $8.8 million. The Wheeler River program at a total cost of $10.0 million (Denison's share $6.0 million) represents the most significant of these programs. A 35,000 metre drilling program has begun to test additional areas with known uranium mineralization along the same mineralized trend hosting the Phoenix deposit.
Exploration work in Canada will also be carried out on the Moore Lake, Hatchet Lake, Murphy Lake, Bell Lake, McClean Lake and Wolly projects at a total cost of $3.8 million (Denison's share $1.6 million). In the United States, drilling is planned on the Beaver mine trend and at the Sunday Complex to outline potential resources which could extend the life of existing operations on these properties. In Arizona, an exploration program on the Company's DB1 breccia pipe is planned. The total cost of the U.S. exploration program is $1.3 million.
Exploration and development activities will be restarted at the Company's Mutanga project in Zambia. A 17,000 metre exploration drill program will follow up on positive drilling results obtained in 2008 and metallurgical test work will be undertaken to further define process design criteria and operating costs. The Zambian program will total an estimated $6.2 million.
In Mongolia, a $7.4 million exploration and development program is projected. A $3.0 million, 38,000 metre exploration program is anticipated to be undertaken on license areas that currently do not have defined resources in order to confirm resources and support future work on these license areas. Development activities on license areas which are more advanced will include drilling of initial test patterns and pilot plant design. The implementation of the Mongolian program is contingent upon resolution of outstanding issues with the Mongolian Government regarding the Nuclear Energy Law and the structure of the Gurvan Saihan Joint Venture. The Company remains hopeful that these issues will be resolved early in 2011 such that the planned programs can be completed.
In Canada and the U.S., a total of $6.4 million will be spent by Denison on development stage projects in 2011. In the United States, development of the Pinenut mine is moving forward with initial production anticipated in early 2012, and permitting will be advanced for the EZ1/EZ2 and Canyon deposits. The cost of these programs is estimated at $5.6 million. In Canada, the McClean North underground development feasibility study will be advanced along with continued evaluation of the Midwest development project under the operatorship of majority owner ARC.
Conference Call
Denison is hosting a conference call on Friday March 11, 2011 starting at 10 A.M. (Toronto time) to discuss the 2010 results. The call will be available live through a webcast link on Denison's website www.denisonmines.com and by telephone at 416-340-8018. A recorded version of the conference call will be available by calling 905-694-9451 (password: 2461552) approximately two hours after the conclusion of the call. The presentation will also be available at www.denisonmines.com.
Additional Information
Additional information on Denison is available on SEDAR at www.sedar.com and on the Company's website at www.denisonmines.com.
About Denison
Denison Mines Corp. is an intermediate uranium producer with production in the U.S., combined with a diversified development portfolio of projects in the U.S., Canada, Zambia and Mongolia. Denison's assets include its 100% ownership of the White Mesa mill in Utah and its 22.5% ownership of the McClean Lake mill in Saskatchewan. The Company also produces vanadium as a co-product from some of its mines in Colorado and Utah. Denison owns interests in world-class exploration projects in the Athabasca Basin in Saskatchewan, including its 60% owned flagship project at Wheeler River, and in the southwestern United States, Mongolia and Zambia. Denison is the manager of Uranium Participation Corporation (TSX: U), a publicly traded company which invests in uranium oxide in concentrates and uranium hexafluoride.
Cautionary Statements
Certain information contained in this press release constitutes 'forward-looking information', within the meaning of the United States Private Securities Litigation Reform Act of 1995 and similar Canadian legislation concerning the business, operations and financial performance and condition of Denison.
Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as 'plans', 'expects' or 'does not expect', 'is expected', 'budget', 'scheduled', 'estimates', 'forecasts', 'intends', 'anticipates' or 'does not anticipate', or 'believes', or variations of such words and phrases or state that certain actions, events or results 'may', 'could', 'would', 'might' or 'will be taken', 'occur', 'be achieved' or 'has the potential to'.
Forward looking statements are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Denison to be materially different from those expressed or implied by such forward-looking statements. Denison believes that the expectations reflected in this forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this press release should not be unduly relied upon. This information speaks only as of the date of this press release. In particular, this press release may contain forward-looking information pertaining to the following: the estimates of Denison's mineral reserves and mineral resources; estimates regarding Denison's uranium and vanadium production levels and sales volumes; capital expenditure programs, estimated production costs, exploration and development expenditures and reclamation costs; expectations of market prices and costs; supply and demand for uranium and vanadium; possible impacts of litigation and regulatory actions on Denison; exploration, development and expansion plans and objectives; Denison's expectations regarding raising capital and adding to its mineral reserves and resources through acquisitions and development; and receipt of regulatory approvals, permits and licences and treatment under governmental regulatory regimes.
There can be no assurance that such statements will prove to be accurate, as Denison's actual results and future events could differ materially from those anticipated in this forward-looking information as a result of those factors discussed in or referred to under the heading 'Risk Factors' in Denison's Annual Information Form dated March 19, 2010 and the Short Form Prospectus dated March 8, 2011, available at http://www.sedar.com, and in its Form 40-F available at http://www.sec.gov, as well as the following: global financial conditions, the market price of Denison's securities, volatility in market prices for uranium and vanadium; ability to access capital, changes in foreign currency exchange rates and interest rates; liabilities inherent in mining operations; uncertainties associated with estimating mineral reserves and resources and production; uncertainty as to reclamation and decommissioning liabilities; failure to obtain industry partner and other third party consents and approvals, when required; delays in obtaining permits and licenses for development properties; competition for, among other things, capital, acquisitions of mineral reserves, undeveloped lands and skilled personnel; public resistance to the expansion of nuclear energy and uranium mining; uranium industry competition and international trade restrictions; incorrect assessments of the value of acquisitions; geological, technical and processing problems; the ability of Denison to meet its obligations to its creditors; actions taken by regulatory authorities with respect to mining activities; the potential influence of or reliance upon its business partners, and the adequacy of insurance coverage.
Accordingly, readers should not place undue reliance on forward-looking statements. These factors are not, and should not be construed as being, exhaustive. Statements relating to 'mineral reserves' or 'mineral resources' are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral reserves and mineral resources described can be profitably produced in the future. The forward-looking information contained in this press release is expressly qualified by this cautionary statement. Denison does not undertake any obligation to publicly update or revise any forward-looking information after the date of this press release to conform such information to actual results or to changes in Denison's expectations except as otherwise required by applicable legislation.
Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources: This press release may use the terms 'Measured', 'Indicated' and 'Inferred' Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. 'Inferred Mineral Resources' have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.
Qualified Person
The disclosure of scientific and technical information regarding Denison's properties in this press release was prepared by or under the supervision of William C. Kerr, the Company's Vice-President, Exploration and Terry Wetz, Director of Project Development who are Qualified Persons in accordance with the requirements of National Instrument 43-101.
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DENISON MINES CORP.
Management's Discussion and Analysis
Year Ended December 31, 2010
(Expressed in U.S. Dollars, Unless Otherwise Noted)
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INTRODUCTION
This Management's Discussion and Analysis ('MD&A') of Denison Mines Corp. and its subsidiary companies and joint ventures (collectively, 'Denison' or the 'Company') provides a detailed analysis of the Company's business and compares its financial results with those of the previous year. This MD&A is dated as of March 10, 2011 and should be read in conjunction with, and is qualified by, the Company's audited consolidated financial statements and related notes for the year ended December 31, 2010. The financial statements are prepared in accordance with generally accepted accounting principles in Canada with a discussion in Note 27 of the material differences between Canadian and United States generally accepted accounting principles and practices affecting the Company. All dollar amounts are expressed in U.S. dollars, unless otherwise noted.
Other continuous disclosure documents, including the Company's press releases, quarterly and annual reports, Annual Information Form and Form 40-F are available through its filings with the securities regulatory authorities in Canada at www.sedar.com and the United States at www.sec.gov/edgar.shtml.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this MD&A constitutes 'forward-looking information', within the meaning of the United States Private Securities Litigation Reform Act of 1995 and similar Canadian legislation concerning the business, operations and financial performance and condition of Denison.
Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as 'plans', 'expects' or 'does not expect', 'is expected', 'budget', 'scheduled', 'estimates', 'forecasts', 'intends', 'anticipates' or 'does not anticipate', or 'believes', or variations of such words and phrases or state that certain actions, events or results 'may', 'could', 'would', 'might' or 'will be taken', 'occur', 'be achieved' or 'has the potential to'.
Forward looking statements are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Denison to be materially different from those expressed or implied by such forward-looking statements. Denison believes that the expectations reflected in this forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this MD&A should not be unduly relied upon. This information speaks only as of the date of this MD&A. In particular, this MD&A may contain forward-looking information pertaining to the following: the estimates of Denison's mineral reserves and mineral resources; estimates regarding Denison's uranium and vanadium production levels and sales volumes; capital expenditure programs, estimated production costs, exploration and development expenditures and reclamation costs; expectations of market prices and costs; supply and demand for uranium and vanadium; possible impacts of litigation and regulatory actions on Denison; exploration, development and expansion plans and objectives; Denison's expectations regarding raising capital and adding to its mineral reserves and resources through acquisitions and development; and receipt of regulatory approvals, permits and licences and treatment under governmental regulatory regimes.
There can be no assurance that such statements will prove to be accurate, as Denison's actual results and future events could differ materially from those anticipated in this forward-looking information as a result of those factors discussed in or referred to under the heading 'Risk Factors' in Denison's Annual Information Form dated March 19, 2010 and the Short Form Prospectus dated March 8, 2011, available at http://www.sedar.com, and in its Form 40-F available at http://www.sec.gov, as well as the following: global financial conditions, the market price of Denison's securities, volatility in market prices for uranium and vanadium; ability to access capital, changes in foreign currency exchange rates and interest rates; liabilities inherent in mining operations; uncertainties associated with estimating mineral reserves and resources and production; uncertainty as to reclamation and decommissioning liabilities; failure to obtain industry partner and other third party consents and approvals, when required; delays in obtaining permits and licenses for development properties; competition for, among other things, capital, acquisitions of mineral reserves, undeveloped lands and skilled personnel; public resistance to the expansion of nuclear energy and uranium mining; uranium industry competition and international trade restrictions; incorrect assessments of the value of acquisitions; geological, technical and processing problems; the ability of Denison to meet its obligations to its creditors; actions taken by regulatory authorities with respect to mining activities; the potential influence of or reliance upon its business partners, and the adequacy of insurance coverage.
Accordingly, readers should not place undue reliance on forward-looking statements. These factors are not, and should not be construed as being, exhaustive. Statements relating to 'mineral reserves' or 'mineral resources' are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral reserves and mineral resources described can be profitably produced in the future. The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement. Denison does not undertake any obligation to publicly update or revise any forward-looking information after the date of this MD&A to conform such information to actual results or to changes in Denison's expectations except as otherwise required by applicable legislation.
Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources: 'This MD&A' may use the terms 'Measured', 'Indicated' and 'Inferred' Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. 'Inferred Mineral Resources' have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.
2010 HIGHLIGHTS
-- Denison's 2010 production totaled 1,442,000 pounds uranium oxide
('U3O8') and 2,347,000 pounds of vanadium blackflake ('V2O5').
-- Uranium sales were 1,839,000 pounds U3O8 at an average price of $47.67
per pound.
-- Vanadium sales totaled 541,000 pounds V2O5 at an average price of $6.44
per pound and 1,003,000 pounds of ferrovanadium ('FeV') at an average
price of $13.40 per pound.
-- At the end of 2010 the Company had 87,000 pounds U3O8 and 679,000 pounds
V2O5 and 11,000 pounds FeV in inventory available for sale. Based on
spot market prices at December 31, 2010, this inventory has a value of
$9,800,000.
-- Denison is essentially debt-free and has a cash balance of $97.6
million.
-- The Company received initial estimates of mineral resources at Zones A
and B at the Phoenix deposit at the Wheeler River project in the
Athabasca Basin in northern Saskatchewan by SRK Consulting (Canada)
Inc., which was retained to independently review and audit the resources
in accordance with the requirements of National Instrument 43-101. The
report estimated indicated mineral resources at Zone A containing
35,640,000 pounds (the Company's share 21,380,000 pounds) at an average
grade of 18.0% U3O8 and inferred mineral resources at Zone B containing
3,810,000 pounds (the Company's share, 2,290,000 pounds) at an average
grade of 7.3% U3O8 based on a cut-off grade of 0.8% U3O8. Denison is
encouraged by these estimates for the potential of Wheeler River in
terms of its high grade and size.
-- The Company began development of its Pinenut mine in Arizona in the
fourth quarter. Production is expected to commence in 2012.
-- The Company completed equity issues in December raising aggregate gross
proceeds of $64,769,000.
-- In Zambia, the Company was granted mining licences for its Mutanga and
Dibwe properties. These licences are for a period of 25 years.
ABOUT DENISON
Denison was formed by articles of amalgamation effective May 9, 1997 pursuant to the Business Corporations Act (Ontario) (the 'OBCA') and by articles of arrangement effective December 1, 2006. Denison is a reporting issuer in all of the Canadian provinces. Denison's common shares are listed on the Toronto Stock Exchange (the 'TSX') under the symbol 'DML' and on the NYSE Amex LLC ('Amex') under the symbol 'DNN'.
Denison is an intermediate uranium producer with production in the U.S. combined with a diversified development portfolio with projects in the U.S., Canada, Zambia and Mongolia. Denison's assets include its 100% ownership of the White Mesa mill in Utah and its 22.5% ownership of the McClean Lake mill in Saskatchewan. The Company also produces vanadium as a co-product from some of its mines in Colorado and Utah. The Company is also in the business of processing uranium-bearing waste materials, referred to as 'alternate feed materials', for the recovery of uranium, alone or in combination with other metals, at the Company's White Mesa mill.
Denison owns interests in a portfolio of exploration projects, including the Wheeler River property, along with other properties in close proximity to the Company's mills in the Athabasca Basin in Saskatchewan and in the Colorado Plateau, Henry Mountains and Arizona Strip regions of the southwestern United States.
Denison is the manager of Uranium Participation Corporation ('UPC'), a publicly traded company which invests in uranium oxide in concentrates and uranium hexafluoride. Denison is also engaged in mine decommissioning and environmental services through its Denison Environmental Services ('DES') division.
Strategy
Denison intends to position itself as an important global uranium producer with annual uranium production of not less than 10 million pounds by 2020. This will take place through production from Denison's currently operating mines and through its ongoing business development activities, including exploration and development of existing projects. Denison will also look to diversify its production geographically and evaluate opportunities to make in-situ uranium recovery a larger component of its production.
The Uranium Industry
Nuclear power capacity and power generation is growing significantly, while uranium production is struggling to catch up after many years of low prices and limited exploration for new deposits required to support the growth of nuclear power and to replace depleting ore bodies. As a result, there is a tight long-term supply-demand balance which can be expected to continue for the foreseeable future. Prices must rise to higher, sustained levels to support the new mines required to meet the increasing demand.
Uranium Demand
As reported by The World Nuclear Association, there are currently 443 nuclear reactors operating worldwide in 29 countries, generating 377.8 gigawatts of electricity and supplying 14% of the world's electrical requirements. Of greater significance, 62 nuclear reactors are under construction in 14 countries with the principal drivers of this expansion being China, India, South Korea and Russia which have a total of 47 reactors under construction. China, in particular, has a very aggressive new build program underway. By 2020, it is estimated that there will be 585 nuclear reactors in operation worldwide, supplying 535 gigawatts. This would represent an increase in the number of reactors of over 32% in only 10 years, with 11 new countries joining the nuclear family.
Nuclear reactors are very capital intensive; therefore economics dictate that they need to be operated to the maximum as base-load power. As a consequence, demand for uranium is nearly non-elastic. Ux Consulting ('UxCo') has estimated in its 'Uranium Market Outlook - Q1 2011', that uranium demand will grow from 185.2 million pounds of U3O8 in 2010 to 250.3 million pounds in 2020.
While long-term demand is steadily growing, short-term demand is affected in a large part by utilities' uncovered requirements. Utilities normally purchase the majority of their fuel requirements under long-term contracts. To the extent that they have uncovered demand in the near term, they will purchase on the spot market which in turn affects the spot price. Currently, the level of uncovered demand is relatively low, so utility buying is purely discretionary and price driven.
Primary Uranium Supply
Uranium supply is the biggest variable in the supply-demand equation. During the time that the accumulated inventories from over production in the 1970s were being drawn down, primary mine production accounted for only approximately 50% of demand. A number of new mines, primarily in Kazakhstan and Africa, have been brought into production over the last few years while others are in various stages of development. However, production still only accounts for approximately 75% of demand and many more mines are required to meet the increasing future demand and to replace mines that are being depleted.
UxCo has estimated in its 'Uranium Market Outlook - Q1 2011' that existing mine production plus new planned and potential mine production will increase primary uranium supply from an estimated 139.6 million pounds in 2010 to 246.5 million pounds in 2020 falling short of expected demand of 250.3 million pounds per year. The principal drivers for the increase in primary mine production are expected to be Kazakhstan, which is projected to increase production by over 40% between 2010 and 2020 and new, low-grade mines in Africa. However prices will need to increase appreciably to support the additional higher cost production required to meet these production forecasts.
Secondary Uranium Supply
Every year since 1985, world primary production has been less than uranium consumption and now supplies only approximately 75% of demand. The balance of demand is supplied from secondary sources such as remaining excess commercial inventories, reprocessing of spent fuel, inventories held by governments and the downblending of highly-enriched uranium ('HEU') from nuclear weapons programs. By far, the most significant of the secondary supplies currently is the 18 to 24 million pounds per year being provided from the HEU downblending program. The HEU program is scheduled to terminate at the end of 2013. The supply gap created by this termination will need to be made up from new primary mine production.
Excess commercial inventories, which were once one of the major sources of secondary supplies during the period from the early 1970s to the early 2000s, have largely been consumed. The disposition of government inventories held by the United States and Russia will have a market impact over the next 10 to 20 years; however, the rate and timing of this material entering the market is uncertain.
Reprocessing of spent fuel is another source of secondary supply but is expected to satisfy only 3 to 4% of demand. Expansion of this secondary source would require major investments in facilities which could only be supported by a significant increase in long-term prices.
UxCo expects that secondary sources of supply will fall from 50 million pounds to 19 million pounds per year from now to 2020.
Uranium Prices
Most of the countries that use nuclear-generated electricity do not have a sufficient domestic uranium supply to fuel their nuclear power reactors, and their electric utilities must secure their required uranium supply by entering into medium-term and long-term contracts with foreign uranium producers and other suppliers. These contracts usually provide for deliveries to begin two to four years after they are signed and provide for four to ten delivery years. In awarding medium-term and long-term contracts, electric utilities consider, in addition to the commercial terms offered, the producer's uranium reserves, record of performance and costs, all of which are important to the producer's or supplier's ability to fulfill long-term supply commitments. Prices are established by a number of methods, including base prices adjusted by inflation indices, reference prices (generally spot price indicators, but also long-term reference prices) and annual price negotiations. Contracts may also contain floor prices, ceiling prices and other negotiated provisions. Under these contracts, the actual price mechanisms are usually confidential. Electric utilities procure their remaining requirements through spot and near-term purchases from uranium producers and other suppliers, including other utilities holding excess inventory and from governments.
The long-term price moved in a narrow band in 2010. It began the year at $62.00 per pound U3O8, went to a low of $58.00 in March 2010 and eventually ended the year at $65.00 per pound U3O8 at December 31, 2010. Long-term prices are driven more by production cost and future supply-demand forecasts than customer inventories. Long-term prices are less volatile than spot prices.
The spot price began 2010 at $44.50 per pound and remained in the $40 to $44 range for the first half of the year. Beginning in July, spot prices began a steady rise per pound U3O8 to end the year at $62.50 per pound. Prices continued to increase in the first quarter of 2011.
Competition
Uranium production is international in scope and is characterized by a relatively small number of companies operating in only a few countries. The top ten producers accounted for over 90% of the world's primary mine supply in 2010.
Over 70% of the world's production came from four countries, namely - Kazakhstan, Canada, Australia and Namibia. Kazakhstan passed Canada in 2009 as the largest producer, a role Canada had held for 17 years.
Marketing Uranium
Denison sells its uranium under a combination of long-term contracts and spot contracts. The long-term contracts have a variety of pricing mechanisms, including fixed prices, base prices adjusted by inflation indices and/or spot price or long-term contract reference prices. Time of delivery during a year under long-term contracts is at the discretion of the customer, so the Company's delivery obligations may vary markedly from quarter to quarter. Spot sales are priced at or near published industry spot prices.
In 2010, approximately 30% of Denison's total sales volume was sold under long term contracts, with the remainder sold in the spot market. The Company currently has three long-term contracts in place. One contract, the KEPCO Offtake Agreement, is for 20% of the Company's annual production from any production source ( /-10%) but not less than 350,000 pounds ( /-10%) per year from 2010 to 2015 inclusive. This agreement also provides for the purchase of 20% of production after 2015 subject to certain conditions. The second contract is for delivery of 1,000,000 pounds of U3O8 from U.S. or Canadian production over a period of five years beginning in 2011. The third contract is for 20% of production from the White Mesa mill during the years 2012 to 2017 inclusive, but not less than 200,000 pounds per year.
Denison will continue to seek long-term contracts at prices sufficient to support the development of its mineral assets.
The Vanadium Market
As a consequence of the economic crisis that began in mid-2007, world steel production declined significantly and remained at depressed levels throughout 2009. The global steel industry has been undergoing a gentle recovery and has now surpassed 2008 production levels primarily due to continued increases in production in China. Since 92% of the world demand for vanadium goes to the steel industry, this has had a pronounced effect on the vanadium demand and price.
The chemical and titanium alloy industries are the other major consumers of vanadium with 4% each of the world demand.
Vanadium adds strength to high performance steels and strengthens titanium where strength combined with lightness is required for everything from golf clubs to aerospace applications. As the demand for these high strength, high performance steels increases and as new uses are developed for lightweight, high strength titanium, vanadium demand can be expected to increase at a faster rate than the growth of global steel production. The average vanadium content in steel in the developing countries is much lower than that in the developed countries and can be expected to increase, adding to the demand.
While demand is expected to grow over time, supply has the capacity to increase to meet this demand. Many primary producers from ore, in countries such as China, Russia and South Africa, were shut down due to low prices. Production from steel making slag had been cut back or halted. As demand increases and prices strengthen, some of these facilities can be expected to restart or increase production thus moderating any anticipated price increases.
Spot prices during 2010 averaged $6.29 per pound ranging from a low of $5.25 per pound in early January to a high of $7.25 in May. Prices for the last half of the year were steady at about $6.20 per pound.
While long-term demand can be expected to increase, short-term demand is expected to be relatively stable and prices should remain close if not slightly higher than their current level throughout 2011.
Vanadium Marketing
Denison sells its vanadium both as black flake (V2O5) and as ferrovanadium (FeV) through spot sales to industry end-users and to trading companies. Sales during 2010 have been principally into the U.S. market; however, efforts are continuing to expand the Company's market into Europe, South America and the Far East.
SELECTED ANNUAL FINANCIAL INFORMATION
The following selected financial information was obtained directly from or calculated using the Company's consolidated financial statements for the years ended December 31, 2010, December 31, 2009 and December 31, 2008.
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Three
Months
ended Year ended Year ended Year ended
(in thousands) Dec. 31 Dec. 31 Dec. 31 Dec. 31
2010 2010 2009 2008
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Results of Operations:
Total revenues $ 39,232 $ 128,320 $ 79,170 $ 123,184
Net income (loss) (12,297) (14,235) (147,012) (80,648)
Basic earnings (loss) per share (0.04) (0.04) (0.51) (0.42)
Diluted earnings (loss) per
share (0.04) (0.04) (0.51) (0.42)
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As at As at As at
Dec. 31, Dec. 31, Dec. 31,
2010 2009 2008
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Financial Position:
Working capital $ 137,098 $ 75,578 $ 34,655
Long-term investments 2,955 10,605 10,691
Property, plant and equipment 714,458 691,039 717,433
Total assets 952,474 867,981 885,702
Total long-term liabilities $ 131,373 $ 127,931 $ 249,716
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RESULTS OF OPERATIONS
General
The Company recorded a net loss of $14,235,000 ($0.04 per share) for 2010 compared with net loss of $147,012,000 ($0.51 per share) for 2009.
Revenues
Uranium sales revenue for the fourth quarter was $22,760,000 from the sale of 449,000 pounds U3O8 at an average price of $49.97 per pound. Uranium sales for the same period in 2009 were 548,000 pounds U3O8 at an average price of $44.14 per pound resulting in revenue of $24,800,000. Uranium revenue in the fourth quarter of 2010 also included amortization of the fair value increment related to Denison Mines Inc. ('DMI') sales contracts of $325,000 (2009 - $622,000).
Uranium sales revenue for the year ended December 31, 2010 totaled $87,978,000. Sales were 1,839,000 pounds U3O8 at an average price of $47.67 per pound. For the year ended December 31, 2009, uranium sales revenue was $59,889,000 from the sale of 1,127,000 pounds U3O8 at an average price of $51.17 per pound. Uranium revenue also included amortization of the fair value increment related to DMI sales contracts of $325,000 (2009 - $2,313,000).
During the fourth quarter the Company sold 314,000 pounds of V2O5 at an average price of $6.34 per pound and 386,000 pounds of FeV at an average price of $12.70 per pound. In the fourth quarter of 2009, the Company sold 11,000 pounds of V2O5 at an average price of $6.00 per pound and 142,000 pounds FeV at an average price of $10.96 per pound. Total vanadium sales revenue for the fourth quarter 2010 was $6,896,000 compared to $1,617,000 in the fourth quarter of 2009.
During the year ended December 31, 2010, the Company sold 1,003,000 pounds of FeV at an average price of $13.40 per pound and 541,000 pounds V2O5 at an average price of $6.44 per pound. Total vanadium sales revenue was $16,934,000. During the year ended December 31, 2009, the Company sold 520,000 pounds of V2O5 at an average price of $3.73 per pound and 229,000 pounds as FeV at an average price of $11.09 per pound. Total vanadium sales revenue was $4,480,000.
In 2010, Denison processed third party ore at its White Mesa mill under a toll milling agreement. Revenue from toll milling totaled $4,963,000.
Revenue from the environmental services division for the three months and year ended December 31, 2010 was $4,221,000 and $15,492,000 compared to $3,985,000 and $12,226,000 in the same periods in 2009. Revenue from the management contract with UPC for the three months and year ended December 31, 2010 was $487,000 and $2,576,000 compared to $636,000 and $2,522,000 in the same periods in 2009.
Operating Expenses
Milling and Mining Expenses
The McClean Lake joint venture produced 1,731,000 pounds U3O8 for the year ended December 31, 2010 compared with 3,609,000 pounds U3O8 for the year ended December 31, 2009. Denison's 22.5% share of production totaled 389,000 pounds for the 2010 period and 812,000 pounds for the 2009 period. The feeding of ore to the McClean mill was completed in June and the mill was placed on stand-by in August.
Canadian production costs(1) for the year were $30.63 (CDN$31.56) per pound U3O8 compared to $27.51 (CDN$31.41) per pound U3O8 for 2009.
Inventory available for sale from Canadian production was 19,000 pounds U3O8 at December 31, 2010.
On June 30, 2009, the Canadian Nuclear Safety Commission ('CNSC') renewed the operating licence for the McClean Lake operation for a period of eight years to June 30, 2017. The Athabasca Regional Government (the 'ARG'), which is comprised of three First Nations and four provincial communities from the Athabasca Basin, launched an application for a judicial review of CNSC's decision to grant the McClean Lake operating licence. ARG challenged the legality of the licence renewal on the basis of issues related to the Federal and Provincial Governments' duty to consult with Aboriginal people. The initial hearing on this matter was held on June 8, 2010 and the judge issued his decision in September 2010, dismissing the application. ARG has launched an appeal of this decision. An adverse decision by the Court could have an impact on the timing of future production.
The White Mesa mill processed alternate feed materials throughout 2010. The mill began processing of Colorado Plateau type ores in mid-March through to October. In November, the mill processed a third party's ore under a toll milling agreement and then began processing Denison's Arizona 1 ore in December. Uranium production during the quarter totaled 229,000 pounds U3O8 and 391,000 pounds V2O5 and totaled 1,053,000 pounds U3O8 and 2,347,000 pounds V2O5 for the year ended December 31, 2010 compared to 107,000 pounds U3O8 and nil V2O5 for the three months and 614,000 pounds U3O8 and 501,000 pounds V2O5 in the year ended December 31, 2009.
At December 31, 2010, a total of 92,800 tons of conventional ore was stockpiled at the mill containing approximately 369,000 pounds U3O8 and 1,732,000 pounds V2O5. The Company also had approximately 392,000 pounds U3O8 contained in alternate feed material stockpiled at the mill at December 31, 2010.
Production costs(1) at White Mesa for the three months ended December 31, 2010 were $39.30 per pound U3O8 and for the year ended December 31, 2010 were $38.46. Production costs were $32.66 per pound U3O8 in the three months ended December 31, 2009 and $60.33 for the year ended December 31, 2009.
Inventory available for sale from U.S. production was 68,000 pounds U3O8, 679,000 pounds V2O5 and 11,000 pounds FeV at December 31, 2010.
On November 16, 2009, as amended on February 1, 2010, the Center for Biological Diversity, Grand Canyon Trust, Sierra Club, Kaibab Band of Paiute Indians and Havasupai Tribe (the 'Plaintiffs') filed a lawsuit against the U.S. Secretary of the Interior and the U.S. Bureau of Land Management ('BLM') (together, the 'Defendants') seeking an order declaring that the Defendants have violated environmental laws in relation to the Company's Arizona 1 mine, by not requiring a new Plan of Operations in connection with the start of mining activities. The Plaintiffs are also claiming that, if a new Plan of Operations is not required, the Defendants failed to conduct a review of potential environmental impacts from the mine since the existing Plan of Operations for the mine was approved by BLM in 1988. The Plaintiffs further claim that all required permits have not been obtained for the mine under the Clean Air Act, and that, as a result, BLM failed to take all actions necessary to prevent unnecessary degradation of the public lands. The Plaintiffs are seeking an order declaring that the Defendants have violated these environmental laws in relation to the Arizona 1 mine, and an injunction directing operations to cease and stopping the Defendants from authorizing or allowing any further mining or exploration operations at the Arizona 1 mine until BLM complies with all applicable laws. On February 8, 2010 the Defendants filed an Answer to the Plaintiffs' complaint denying the foregoing allegations. Denison has been added as an intervener in this lawsuit, and believes that each of these allegations is without legal merit; is not supported by the administrative record; and should be dismissed.
On April 19, 2010, Plaintiffs filed a motion for a preliminary injunction to shut down operations at the mine pending a decision on the merits of the case. A hearing on the motion for an injunction was held on June 11, 2010, and on June 17, 2010 the judge denied the Plaintiffs' request for preliminary injunctive relief. On July 12, 2010, the Plaintiffs appealed the ruling on the preliminary injunction to the Ninth Circuit Court of Appeals, and on July 14, 2010 filed another motion for preliminary injunction, pending appeal. That motion was denied by the judge on August 11, 2010. On August 16, 2010 the Plaintiff's filed an emergency motion for an injunction pending appeal in the Court of Appeals. On August 31, 2010, a two-judge panel denied that motion. The appeal to the Court of Appeals of the district judge's original ruling denying the preliminary injunction was heard on January 14, 2011, and a decision of the Court of Appeals is pending at this time. The original case is ongoing. If the Plaintiffs are successful on the appeal or on the merits, the Company may be required to stop mining activities at the Arizona 1 mine pending resolution of this matter. Any required stoppage of mining could have a significant adverse impact on the Company.
In August 2009, the Arizona Department of Environmental Quality ('ADEQ') issued an air quality permit that authorized the restart and operation of the Arizona 1 mine. Despite this authorization by ADEQ and a previous authorization of construction and operation of the mine by the United States Environmental Protection Agency ('EPA') in 1988, EPA has alleged that a new EPA approval is required at this time, notwithstanding the ADEQ permit. On May 3, 2010, EPA issued a Finding of Violation to Denison alleging non-compliance with the provisions of the Clean Air Act for not obtaining this second EPA approval and associated matters. EPA and Denison are currently in discussions to settle this administrative action which may involve the payment of a stipulated penalty.
On July 29, 2010, Uranium Watch, Living Rivers and Center for Water Advocacy (the 'Pandora Plaintiffs') filed a lawsuit against the U.S. Forest Service ('USFS') and the Forest Supervisor for the Manti-La Sal National Forest (together, the 'Pandora Defendants') seeking an order declaring that the Pandora Defendants have violated environmental laws in relation to the Company's Pandora mine, by not requiring an Environmental Assessment or Environmental Impact Statement under the National Environmental Policy Act ('NEPA') in connection with the USFS's approval of Plans of Operation authorizing the Company to construct two vent holes and drill 16 uranium exploration holes at the mine. The Pandora Plaintiffs are seeking an order declaring that the Pandora Defendants have violated NEPA and vacating the USFS' approval of the Plans of Operation for these two projects, and enjoining the USFS from allowing the projects to proceed pending full compliance with the law. The Pandora Plaintiffs also filed a motion for a temporary restraining order and preliminary injunction against the commencement of the projects. Denison has been added as an intervener in this lawsuit. A hearing on the motion for a preliminary injunction was held on September 2, 2010, and on September 14, 2010 the judge denied the Pandora Plaintiff's request for preliminary injunctive relief. The original case is ongoing. At this time, all of the exploration holes have been drilled and one of the two vent holes has been installed.
On August 17, 2010, EPA issued a Notice of Violation under the Clean Air Act, citing four violations of the National Emission Standards for Hazardous Air Pollutants for underground uranium mines, relating to operations at Denison's La Sal mines complex in Utah in 2009. Those violations were for alleged failure to obtain prior approval from EPA for the radon monitoring method used at the site, for some gaps in data collection and reporting, and for allegedly exceeding the emission standards at certain receptors using the prescribed air dispersion model. Denison has applied to EPA for approval to continue to use the radon monitoring method at the site, which is the same method used historically by the uranium mining industry. Similarly Denison does not believe the prescribed air dispersion model is sophisticated enough to accurately calculate potential doses from radon to nearby receptors at the La Sal mines, given the complex terrain and other factors at the site, and has applied to EPA for approval to use a more sophisticated air dispersion model. The Clean Air Act provides that, when a person is in violation of certain provisions of the Act, EPA may issue an administrative penalty, issue an order requiring compliance with the requirements, or bring a civil action, among other remedies. Administrative penalties can be based on the number of days of violation, the size of the business, the economic benefit of non-compliance, the seriousness of the violation and other factors, and can be significant. EPA has not issued an order or brought civil enforcement action at this time.
Other
Operating costs for the three months and year ended December 31, 2010 include recoveries of $82,000 an