ANNUAL CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEAR ENDED DECEMBER 31,
2018
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Responsibility for Financial
Statements
The
Company’s management is responsible for the integrity and
fairness of presentation of these consolidated financial
statements. The consolidated financial statements have been
prepared by management, in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board, for review by the Audit Committee and approval by
the Board of Directors.
The
preparation of financial statements requires the selection of
appropriate accounting policies in accordance with International
Financial Reporting Standards and the use of estimates and
judgements by management to present fairly and consistently the
consolidated financial position of the Company. Estimates are
necessary when transactions affecting the current period cannot be
finalized with certainty until future information becomes
available. In making certain material estimates, the
Company’s management has relied on the judgement of
independent specialists.
The
Company’s management has developed and maintains a system of
internal accounting controls to ensure, on a reasonable and
cost-effective basis, that the financial information is timely
reported and is accurate and reliable in all material respects and
that the Company’s assets are appropriately accounted for and
adequately safeguarded.
The
consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, our independent auditor. Its report
outlines the scope of its examination and expresses its opinions on
the consolidated financial statements and internal control over
financial reporting.
Original signed by
“David
D.Cates”
|
|
Original signed by
“Gabriel (Mac)
McDonald”
|
David D. Cates
|
|
Gabriel (Mac)
McDonald
|
President and Chief Executive
Officer
|
|
Vice-President Finance and
Chief Financial Officer
|
March 8, 2018
Management’s Report on Internal
Control over Financial Reporting
The
Company’s management is responsible for establishing and
maintaining an adequate system of internal control over financial
reporting. Management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the
Internal Control –
Integrated Framework, 2013
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Company’s internal
control over financial reporting was effective as of December 31,
2018.
The
effectiveness of the Company’s internal control over
financial reporting as at December 31, 2018 has been audited by
PricewaterhouseCoopers LLP, our independent auditor, as stated in
its report which appears herein.
Changes to Internal Control over
Financial Reporting
There has not been any change
in the Company’s internal control over financial reporting
that occurred during 2018 that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Denison Mines
Corp.
Opinions
on the Financial Statements and Internal Control over Financial
Reporting
We
have audited the accompanying consolidated statements of financial
position of Denison Mines Corp. and its subsidiaries (the company)
as of December 31, 2018 and 2017, and the related consolidated
statements of income (loss) and comprehensive income (loss),
changes in equity and cash flow for the years then ended, including
the related notes (collectively referred to as the "consolidated
financial statements"). We also have audited the company's internal
control over financial reporting as of December 31, 2018, based on
criteria established in
Internal
Control – Integrated Framework
(2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In
our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the company as of December 31, 2018 and 2017, and its
financial performance and its cash flows for the years then ended
in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board. Also in our
opinion, the company maintained, in all material respects,
effective internal control over financial reporting as of December
31, 2018, based on criteria established in
Internal Control – Integrated
Framework
(2013) issued by the COSO.
Change in Accounting
Principles
As
discussed in Note 3 to the consolidated financial statements, the
company changed the manner in which it accounts for revenue and
financial instruments in 2018. The company also changed its
presentation currency in 2018, as discussed in Note
3.
Basis for
Opinions
The
company's management is responsible for these consolidated
financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal
Control over Financial Reporting. Our responsibility is to express
opinions on the company’s consolidated financial statements
and on the company's internal control over financial reporting
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud, and whether effective internal control over
financial reporting was maintained in all material
respects.
PricewaterhouseCoopers
LLP
PwC Tower, 18
York Street, Suite 2600, Toronto, Ontario, Canada M5J
0B2
T: +1 416
863 1133, F: +1 416 365 8215,
www.pwc.com/ca
“PwC” refers to
PricewaterhouseCoopers LLP, an Ontario limited liability
partnership.
Our
audits of the consolidated financial statements included performing
procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition
and Limitations of Internal Control over Financial
Reporting
A
company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
(Signed)
“PricewaterhouseCoopers LLP”
Chartered
Professional Accountants, Licensed Public
Accountants
Toronto, Ontario,
Canada
March 7, 2019
We
have served as the company's auditor since at least 1996. We have
not been able to determine the specific year we began serving as
auditor of the company.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in
thousands of Canadian dollars (“CAD”) except for share
amounts)
|
|
|
At December
31
2018
|
|
At December
31
2017
|
|
At January
1
2017
|
ASSETS
|
|
|
|
Restated
(notes
3, 5)
|
|
Restated
(notes
3, 5)
|
Current
|
|
|
|
|
|
|
Cash and cash
equivalents (note 7)
|
$
|
23,207
|
$
|
3,636
|
$
|
15,894
|
Investments (note
10)
|
|
-
|
|
37,807
|
|
-
|
Trade and other
receivables (note 8)
|
|
4,072
|
|
4,791
|
|
3,226
|
Inventories (note
9)
|
|
3,584
|
|
3,454
|
|
3,196
|
Prepaid expenses
and other
|
|
843
|
|
664
|
|
660
|
|
|
31,706
|
|
50,352
|
|
22,976
|
Non-Current
|
|
|
|
|
|
|
Inventories-ore
in stockpiles (note 9)
|
|
2,098
|
|
2,098
|
|
2,098
|
Investments (note
10)
|
|
2,255
|
|
7,359
|
|
5,049
|
Investments in
associates (note 11)
|
|
5,582
|
|
5,305
|
|
6,011
|
Restricted cash
and investments (note 12)
|
|
12,255
|
|
12,184
|
|
3,107
|
Property, plant
and equipment (note 13)
|
|
258,291
|
|
249,002
|
|
252,392
|
Total
assets
|
$
|
312,187
|
$
|
326,300
|
$
|
291,633
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
$
|
5,554
|
$
|
5,756
|
$
|
5,561
|
Current portion
of long-term liabilities:
|
|
|
|
|
|
|
Deferred revenue
(note 14)
|
|
4,567
|
|
4,936
|
|
-
|
Post-employment
benefits (note 15)
|
|
150
|
|
250
|
|
250
|
Reclamation
obligations (note 16)
|
|
877
|
|
819
|
|
1,088
|
Other liabilities
(note 17)
|
|
1,337
|
|
3,835
|
|
2,850
|
|
|
12,485
|
|
15,596
|
|
9,749
|
Non-Current
|
|
|
|
|
|
|
Deferred revenue
(note 14)
|
|
33,160
|
|
33,716
|
|
-
|
Post-employment
benefits (note 15)
|
|
2,145
|
|
2,115
|
|
2,209
|
Reclamation
obligations (note 16)
|
|
29,187
|
|
27,690
|
|
27,060
|
Other liabilities
(note 17)
|
|
-
|
|
-
|
|
845
|
Deferred income
tax liability (note 18)
|
|
12,963
|
|
17,422
|
|
20,168
|
Total
liabilities
|
|
89,940
|
|
96,539
|
|
60,031
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
Share capital
(note 19)
|
|
1,331,214
|
|
1,310,473
|
|
1,295,235
|
Share purchase
warrants (note 20)
|
|
435
|
|
435
|
|
-
|
Contributed
surplus (note 21)
|
|
63,634
|
|
61,799
|
|
60,612
|
Deficit
|
|
(1,174,163)
|
|
(1,144,086)
|
|
(1,124,523)
|
Accumulated other
comprehensive income (note 22)
|
|
1,127
|
|
1,140
|
|
278
|
Total
equity
|
|
222,247
|
|
229,761
|
|
231,602
|
Total
liabilities and equity
|
$
|
312,187
|
$
|
326,300
|
$
|
291,633
|
|
|
|
|
|
|
|
Issued and
outstanding common shares (note 19)
|
589,175,086
|
|
559,183,209
|
|
540,722,365
|
Commitments
and contingencies (note 27)
|
|
|
|
|
|
|
Subsequent
events (note 29)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
On behalf of the Board of
Directors
:
"signed"
|
|
Catherine
J.G. Stefan
|
Brian
Edgar
|
Director
|
Director
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated
Statements of Income (Loss) and
Comprehensive Income (Loss)
|
|
|
|
|
Year
Ended December 31
|
(Expressed in
thousands of CAD dollars except for share and per share
amounts)
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Restated
(notes
3, 5)
|
|
|
|
|
|
|
|
|
|
REVENUES
(note 24)
|
|
|
|
|
$
|
15,550
|
$
|
16,067
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Operating
expenses (note 23, 24)
|
|
|
|
|
|
(15,948)
|
|
(13,758)
|
Exploration and
evaluation (note 24)
|
|
|
|
|
|
(15,457)
|
|
(16,643)
|
General and
administrative (note 24)
|
|
|
|
|
|
(7,189)
|
|
(7,680)
|
Impairment
reversal (expense) (note 13)
|
|
|
|
|
(6,086)
|
|
331
|
Other income
(expense) (note 23)
|
|
|
|
|
|
(5,865)
|
|
1,995
|
|
|
|
|
|
|
(50,545)
|
|
(35,755)
|
Loss
before finance charges, equity accounting
|
|
|
|
|
|
(34,995)
|
|
(19,688)
|
|
|
|
|
|
|
|
|
|
Finance expense,
net (note 23)
|
|
|
|
|
|
(3,653)
|
|
(4,226)
|
Equity share of
income (loss) of associate (note 11)
|
|
|
|
|
|
277
|
|
(706)
|
Loss before
taxes
|
|
|
|
|
|
(38,371)
|
|
(24,620)
|
Income tax
recovery (note 18):
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
8,294
|
|
5,166
|
Loss from
continuing operations
|
|
|
|
|
|
(30,077)
|
|
(19,454)
|
Net loss from
discontinued operations (note 6)
|
|
|
|
-
|
|
(109)
|
Net loss for the
period
|
|
|
|
|
$
|
(30,077)
|
$
|
(19,563)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss) (note 22):
|
|
|
|
|
|
|
Items that may be
reclassified to loss:
|
|
|
|
|
|
|
Foreign currency
translation change
|
|
|
|
|
|
(13)
|
|
862
|
Comprehensive
loss for the period
|
|
|
|
|
$
|
(30,090)
|
$
|
(18,701)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net income (loss) per share:
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
$
|
(0.05)
|
$
|
(0.04)
|
Discontinued
operations
|
|
|
|
$
|
0.00
|
$
|
0.00
|
All
operations
|
|
|
|
|
$
|
(0.05)
|
$
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding (in thousands):
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
|
|
|
564,976
|
|
555,263
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated Statements of Changes in Equity
|
|
|
|
|
Year
Ended December 31
|
(Expressed in
thousands of CAD dollars)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Restated
(notes
3, 5)
|
Share capital (note 19)
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
$
|
1,310,473
|
$
|
1,295,235
|
Shares issued for
cash, net of issue costs
|
|
|
|
|
|
4,549
|
|
18,871
|
Flow-through
share premium
|
|
|
|
|
|
(1,337)
|
|
(3,835)
|
Shares issued on
acquisition of additional Wheeler River property interest (note
13)
|
|
17,529
|
|
-
|
Share options
exercised-cash
|
|
|
|
|
|
-
|
|
90
|
Share options
exercised-non cash
|
|
|
|
|
|
-
|
|
112
|
Balance-end of
period
|
|
|
|
|
|
1,331,214
|
|
1,310,473
|
|
|
|
|
|
|
|
|
|
Share purchase warrants (note 20)
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
435
|
|
-
|
Warrants issued
in connection with APG Arrangement (note 14)
|
|
|
|
-
|
|
435
|
Balance-end of
period
|
|
|
|
|
|
435
|
|
435
|
|
|
|
|
|
|
|
|
|
Contributed surplus (note 21)
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
61,799
|
|
60,612
|
Stock-based
compensation expense
|
|
|
|
|
|
1,835
|
|
1,299
|
Share options
exercised-non-cash
|
|
|
|
|
|
-
|
|
(112)
|
Balance-end of
period
|
|
|
|
|
|
63,634
|
|
61,799
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
(1,144,086)
|
|
(1,124,523)
|
Net
loss
|
|
|
|
|
|
(30,077)
|
|
(19,563)
|
Balance-end of
period
|
|
|
|
|
|
(1,174,163)
|
|
(1,144,086)
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss (note 22)
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
1,140
|
|
278
|
Foreign currency
translation
|
|
|
|
|
|
(13)
|
|
862
|
Balance-end of
period
|
|
|
|
|
|
1,127
|
|
1,140
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
$
|
229,761
|
$
|
231,602
|
Balance-end of
period
|
|
|
|
|
$
|
222,247
|
$
|
229,761
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated Statements of Cash Flow
|
|
|
|
|
Year
Ended December 31
|
(Expressed in
thousands of CAD dollars)
|
|
|
|
2018
|
|
2017
|
CASH PROVIDED BY (USED IN):
|
|
|
|
|
|
Restated
(notes
3, 5)
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss for the
period
|
|
|
$
|
(30,077)
|
$
|
(19,563)
|
Items not
affecting cash and cash equivalents:
|
|
|
|
|
|
|
Depletion,
depreciation, amortization and accretion
|
|
|
|
8,585
|
|
9,135
|
Impairment
expense (reversal) (note 13)
|
|
|
|
6,086
|
|
(331)
|
Stock-based
compensation (note 21)
|
|
|
|
1,835
|
|
1,299
|
Recognition of
deferred revenue (note 14)
|
|
|
|
(4,239)
|
|
(4,443)
|
Losses on
reclamation obligation revisions (note 16)
|
|
|
|
369
|
|
71
|
Gain on
extinguishment of toll milling liability (note 17, 23)
|
|
|
|
-
|
|
(899)
|
Loss on
divestiture of Africa Mining Division (note 6)
|
|
|
|
-
|
|
109
|
Losses (gains) on
property, plant and equipment disposals (note 23)
|
|
|
135
|
|
(27)
|
Losses (gains) on
investments (note 23)
|
|
|
|
5,411
|
|
(2,417)
|
Equity loss of
associate (note 11)
|
|
|
|
472
|
|
1,015
|
Dilution gain of
associate (note 11)
|
|
|
|
(749)
|
|
(309)
|
Non-cash
inventory adjustments and other
|
|
|
|
56
|
|
172
|
Deferred income
tax recovery (note 18)
|
|
|
|
(8,294)
|
|
(5,166)
|
Foreign exchange
losses (note 23)
|
|
|
|
1
|
|
853
|
Deferred revenue
cash receipts (note 14)
|
|
|
|
-
|
|
39,980
|
Post-employment
benefits (note 15)
|
|
|
|
(142)
|
|
(168)
|
Reclamation
obligations (note 16)
|
|
|
|
(755)
|
|
(981)
|
Change in
non-cash working capital items (note 23)
|
|
|
|
355
|
|
(1,455)
|
Net
cash provided by (used in) operating activities
|
|
|
|
(20,951)
|
|
16,875
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
Divestiture of
asset group, net of cash and cash equivalents
divested:
|
|
|
|
|
|
Africa Mining
Division (note 6)
|
|
|
|
-
|
|
(109)
|
Increase in loans
receivable (note 8)
|
|
|
|
(250)
|
|
-
|
Sale of
investments (note 10)
|
|
|
|
37,500
|
|
2,500
|
Purchase of
investments (note 10)
|
|
|
|
-
|
|
(40,200)
|
Expenditures on
property, plant and equipment (note 13)
|
|
|
|
(1,567)
|
|
(1,086)
|
Proceeds on sale
of property, plant and equipment
|
|
|
361
|
|
248
|
Increase in
restricted cash and investments
|
|
|
(71)
|
|
(9,077)
|
Net
cash provided by (used in) investing activities
|
|
|
|
35,973
|
|
(47,724)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Repayment
of debt obligations (note 17)
|
|
|
|
-
|
|
(370)
|
Issuance
of common shares for:
|
|
|
|
|
|
|
New share
issues-net of issue costs (note 19)
|
|
|
|
4,549
|
|
18,871
|
Share options
exercised (note 19)
|
|
|
|
-
|
|
90
|
Net
cash provided by financing activities
|
|
|
|
4,549
|
|
18,591
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
|
19,571
|
|
(12,258)
|
Cash
and cash equivalents, beginning of period
|
|
|
|
3,636
|
|
15,894
|
Cash
and cash equivalents, end of period
|
|
|
$
|
23,207
|
$
|
3,636
|
Supplemental
cash flow disclosure (note 23)
|
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Notes to the consolidated financial statements for the years ended
December 31, 2018 and 2017
|
(Expressed in CAD
dollars except for shares and per share amounts)
|
|
Denison Mines
Corp. (“DMC”) and its subsidiary companies and joint
arrangements (collectively, “Denison” or the
“Company”) are engaged in uranium mining related
activities, which can include acquisition, exploration and
development of uranium properties, extraction, processing and
selling of uranium.
The Company has a
90.0% interest in the Wheeler River Joint Venture
(“WRJV”), a 65.92% interest in the Waterbury Lake
Uranium Limited Partnership (“WLULP”), a 22.5% interest
in the McClean Lake Joint Venture (“MLJV”) (which
includes the McClean Lake mill) and a 25.17% interest in the
Midwest Joint Venture (“MWJV”), each of which are
located in the eastern portion of the Athabasca Basin region in
northern Saskatchewan, Canada. The McClean Lake mill provides toll
milling services to the Cigar Lake Joint Venture
(“CLJV”) under the terms of a toll milling agreement
between the parties (see note 14). In addition, the Company has
varying ownership interests in a number of other development and
exploration projects located in Canada.
The Company
provides mine decommissioning and environmental consulting services
(collectively “environmental services”) to third
parties through its Denison Environmental Services
(“DES”) division and is also the manager of Uranium
Participation Corporation (“UPC”), a publicly-listed
investment holding company formed to invest substantially all of
its assets in uranium oxide concentrates (“U
3
O
8
“) and
uranium hexafluoride (“UF
6
”). The
Company has no ownership interest in UPC but receives fees for
management services and commissions from the purchase and sale of
U
3
O
8
and
UF
6
by
UPC.
DMC is
incorporated under the Business Corporations Act (Ontario) and
domiciled in Canada. The address of its registered head office is
40 University Avenue, Suite 1100, Toronto, Ontario, Canada, M5J
1T1.
References to
“2018” and “2017” refer to the year ended
December 31, 2018 and the year ended December 31, 2017
respectively.
2.
STATEMENT
OF COMPLIANCE
These
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting
Standards Board (“IASB”).
These financial
statements were approved by the board of directors for issue on
March 7, 2019.
3.
ACCOUNTING
POLICIES, ACCOUNTING CHANGES AND COMPARATIVE NUMBERS
Significant
accounting policies
These
consolidated financial statements are presented in Canadian dollars
and all financial information is presented in Canadian dollars,
unless otherwise noted. Effective January 1, 2018, the Company
changed its presentation currency from U.S. dollars
(“USD”) to Canadian dollars (“CAD”). The
comparative periods have been restated to reflect this change in
presentation currency and they have also been restated to reflect
the adoption of IFRS 9, Financial Instruments, and IFRS 15, Revenue
from Contracts with Customers. Refer to the “Accounting
Changes for fiscal 2018” section below and note 5 for more
information.
The preparation
of the consolidated financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amount of assets, liabilities, revenue and expenses. Actual results
may vary from these estimates.
Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 4.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The significant
accounting policies used in the preparation of these consolidated
financial statements are described below:
A.
Consolidation
principles
The financial
statements of the Company include the accounts of DMC, its
subsidiaries, its joint operations and its investments in
associates.
Subsidiaries
Subsidiaries are
all entities (including structured entities) over which the group
has control. The group controls an entity where the group is
exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through
its power to direct the activities of the entity. Subsidiaries are
fully consolidated from the date on which control is transferred to
the group and are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealized gains and losses
from intercompany transactions are eliminated.
Joint
Operations
Joint operations
include various mineral property interests which are held through
option or contractual agreements. These arrangements involve joint
control of one or more of the assets acquired or contributed for
the purpose of the joint operation. A joint operation may or may
not be structured through a separate financial vehicle. The
consolidated financial statements of the Company include its share
of the assets in such joint operations, together with its share of
the liabilities, revenues and expenses arising jointly or otherwise
from those operations. All such amounts are measured in accordance
with the terms of each arrangement.
Investments
in associates
An associate is
an entity over which the Company has significant influence and is
neither a subsidiary, nor an interest in a joint operation.
Significant influence is the ability to participate in the
financial and operating policy decisions of the entity without
having control or joint control over those policies.
Associates are
accounted for using the equity method. Under this method, the
investment in associates is initially recorded at cost and adjusted
thereafter to record the Company’s share of post-acquisition
earnings or loss of the associate as if the associate had been
consolidated. The carrying value of the investment is also
increased or decreased to reflect the Company’s share of
capital transactions, including amounts recognized in other
comprehensive income, and for accounting changes that relate to
periods subsequent to the date of acquisition. Dilution gains or
losses arising from changes in the interest in investments in
associates are recognized in the statement of income or
loss.
The Company
assesses at each period-end whether there is any objective evidence
that an investment in an associate is impaired. If impaired, the
carrying value of the Company's share of the underlying assets of
the associate is written down to its estimated recoverable amount,
being the higher of fair value less costs of disposal or value in
use, and charged to the statement of income or loss.
B.
Foreign
currency translation
Functional
and presentation currency
Items included in
the financial statements of each entity in the DMC group are
measured using the currency of the primary economic environment in
which the entity operates (“the functional currency”).
Primary and secondary indicators are used to determine the
functional currency. Primary indicators include the currency that
mainly influences sales prices, labour, material and other costs.
Secondary indicators include the currency in which funds from
financing activities are generated and in which receipts from
operating activities are usually retained. Typically, the local
currency has been determined to be the functional currency of
Denison’s entities.
The financial
statements of entities that have a functional currency different
from the presentation currency of DMC (“foreign
operations”) are translated into Canadian dollars as follows:
assets and liabilities-at the closing rate at the date of the
statement of financial position, and income and expenses-at the
average rate of the period (as this is considered a reasonable
approximation to actual rates). All resulting changes are
recognized in other comprehensive income or loss as cumulative
foreign currency translation adjustments.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
When the Company
disposes of its entire interest in a foreign operation, or loses
control, joint control, or significant influence over a foreign
operation, the foreign currency gains or losses accumulated in
other comprehensive income or loss related to the foreign operation
are recognized in the statement of income or loss as translational
foreign exchange gains or losses.
Transactions
and balances
Foreign currency
transactions are translated into an entity’s functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of foreign currency transactions and from the
translation at year-end exchange rates of monetary assets and
liabilities denominated in currencies other than an
operation’s functional currency are recognized in the
statement of income or loss as transactional foreign exchange gains
or losses.
C.
Cash and
cash equivalents
Cash and cash
equivalents include cash on hand, deposits held with banks, and
other short-term highly liquid investments with original maturities
of three months or less which are subject to an insignificant risk
of changes in value.
Financial assets
and financial liabilities are recognized when the Company becomes a
party to the contractual provisions of the financial instrument.
Financial assets are derecognized when the rights to receive cash
flows from the assets have expired or have been transferred and the
Company has transferred substantially all risks and rewards of
ownership. Financial liabilities are derecognized when the
obligations specified in the contract are discharged, cancelled or
expire.
At initial
recognition, the Company classifies its financial instruments in
the following categories:
Financial
assets and liabilities at fair value through profit or loss
(“FVTPL”)
A financial asset
is classified in this category if it is a derivative instrument, an
equity instrument for which the Company has not made the
irrevocable election to classify as fair value through other
comprehensive income (“FVTOCI”), or a debt instrument
that is not held within a business model whose objective includes
holding the financial assets in order to collect contractual cash
flows that are solely payments of principal and interest.
Derivative financial liabilities and contingent consideration
liabilities related to business combinations are also classified in
this category. Financial instruments in this category are
recognized initially and subsequently at fair value. Transaction
costs are expensed in the statement of income or loss. Gains and
losses arising from changes in fair value are presented in the
statement of income or loss – within other income (expense) -
in the period in which they arise.
Financial
assets at amortized cost
A financial asset
is classified in this category if it is a debt instrument and / or
other similar asset that is held within a business model whose
objective is to hold the asset in order to collect the contractual
cash flows (i.e. principal and interest). Financial assets in this
category are initially recognized at fair value plus transaction
costs and subsequently measured at amortized cost using the
effective interest method less a provision for impairment. Interest
income is recorded in the statement of income or loss through
finance income.
Financial
liabilities at amortized cost
All financial
liabilities that are not recorded as FVTPL are classified in this
category and are initially recognized less a discount (when
material) to reduce the financial liabilities to fair value and
less any directly attributable transaction costs. Subsequently,
financial liabilities are measured at amortized cost using the
effective interest method. Interest expense is recorded in net
income through finance expense.
Refer to the
“Fair Value of Financial Instruments” section of note
26 for the Company’s designation of its financial assets and
liabilities.
E.
Impairment
of financial assets
At each reporting
date, the Company assesses the expected credit losses associated
with its financial assets that are not carried at FVTPL. Expected
credit losses are calculated based on the difference between the
contractual cash flows and the cash flows that the Company expects
to receive, discounted, where applicable, based on the assets
original effective interest rate.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
For “Trade
and other receivables”, the Company calculates expected
credit losses based on historical credit loss experience, adjusted
for forward-looking factors specific to debtors and the economic
environment. In recording an impairment loss, the carrying amount
of the asset is reduced by this computed amount either directly or
indirectly through the use of an allowance account.
Expenditures,
including depreciation, depletion and amortization of production
assets, incurred in the mining and processing activities that will
result in future concentrate production are deferred and
accumulated as ore in stockpiles, in-process inventories and
concentrate inventories. These amounts are carried at the lower of
average costs or net realizable value (“NRV”). NRV is
the difference between the estimated future concentrate price (net
of selling costs) and estimated costs to complete production into a
saleable form.
Stockpiles are
comprised of coarse ore that has been extracted from the mine and
is available for further processing. Mining production costs are
added to the stockpile as incurred and removed from the stockpile
based upon the average cost per tonne of ore produced from mines
considered to be in commercial production. The current portion of
ore in stockpiles represents the amount expected to be processed in
the next twelve months.
In-process and
concentrate inventories include the cost of the ore removed from
the stockpile, a pro-rata share of the amortization of the
associated mineral property, as well as production costs incurred
to process the ore into a saleable product. Processing costs
typically include labor, chemical reagents and directly
attributable mill overhead expenditures. Items are valued at
weighted average cost.
Materials and
other supplies held for use in the production of inventories are
carried at average cost and are not written down below that cost if
the finished products in which they will be incorporated are
expected to be sold at or above cost. However, when a decline in
the price of concentrates indicates that the cost of the finished
products exceeds net realizable value, the materials are written
down to net realizable value. In such circumstances, the
replacement cost of the materials may be the best available measure
of their net realizable value.
G.
Property,
plant and equipment
Plant
and equipment
Property, plant
and equipment are recorded at acquisition or production cost and
carried net of depreciation and impairments. Cost includes
expenditures incurred by the Company that are directly attributable
to the acquisition of the asset. Subsequent costs are included in
the asset’s carrying amount or recognized as a separate
asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Company
and the cost can be measured reliably. The carrying amount of a
replaced asset is derecognized when replaced. Repairs and
maintenance costs are charged to the statement of income during the
period in which they are incurred.
Depreciation is
calculated on a straight line or unit of production basis as
appropriate. Where a straight line methodology is used, the assets
are depreciated to their estimated residual value over an estimated
useful life which ranges from three to twenty years depending upon
the asset type. Where a unit of production methodology is used, the
assets are depreciated to their estimated residual value over the
useful life defined by management’s best estimate of
recoverable reserves and resources in the current mine plan. When
assets are retired or sold, the resulting gains or losses are
reflected in the statement of income or loss as a component of
other income or expense. The Company allocates the amount initially
recognized in respect of an item of property, plant and equipment
to its significant parts and depreciates separately each such part.
Residual values, method of depreciation and useful lives of the
assets are reviewed at least annually and adjusted if
appropriate.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Where
straight-line depreciation is utilized, the range of useful lives
for various asset classes is generally as follows:
Buildings
|
15 -
20 years;
|
Production machinery and
equipment
|
5 - 7 years;
|
Other
|
3 – 5 years.
|
Mineral
property acquisition, exploration, evaluation and development
costs
Costs relating to
mineral and / or exploration rights acquired through a business
combination or asset acquisition are capitalized and reported as
part of “Property, plant and equipment”.
Exploration
expenditures are expensed as incurred.
Evaluation
expenditures are expensed as incurred, until an area of interest is
considered by management to be sufficiently advanced. Once this
determination is made, the area of interest is classified as an
evaluation stage mineral property, a component of the
Company’s mineral properties, and all further non-exploration
expenditures for the current and subsequent periods are
capitalized. These expenses can include further evaluation
expenditures such as mining method selection and optimization,
metallurgical sampling test work and costs to further delineate the
ore body to a higher confidence level.
Once commercial
and technical viability has been established for a property, the
property is classified as a development stage mineral property and
all further development costs are capitalized to the asset. Further
development costs include costs related to constructing a mine,
such as shaft sinking and access, lateral development, drift
development, engineering studies and environmental permitting,
infrastructure development and the costs of maintaining the site
until commercial production.
Such capital
costs represent the net expenditures incurred and capitalized as at
the balance sheet date and do not necessarily reflect present or
future values.
Once a
development stage mineral property goes into commercial production,
the property is classified as “Producing” and the
accumulated costs are amortized over the estimated recoverable
resources in the current mine plan using a unit of production
basis. Commercial production occurs when a property is
substantially complete and ready for its intended use.
Proceeds received
from the sale of an interest in a property are credited against the
carrying value of the property, with any difference recorded as a
gain or loss on sale.
H.
Impairment
of non-financial assets
Property, plant
and equipment assets are assessed at the end of each reporting
period to determine if there is any indication that the asset may
be impaired. If any such indication exists, an estimate of the
recoverable amount of the asset is made. For the purpose of
measuring recoverable amounts, assets are grouped at the lowest
level, or cash generating unit (“CGU”), for which there
are separately identifiable cash inflows. The recoverable amount is
the higher of an asset’s fair value less costs of disposal
and value in use (being the present value of the expected future
cash flows of the relevant asset or CGU, as determined by
management). An impairment loss is recognized for the amount by
which the CGU’s carrying amount exceeds its recoverable
amount.
Mineral property
assets are tested for impairment using the impairment indicators
under IFRS 6 “Exploration for and Evaluation of Mineral
Resources” up until the commercial and technical feasibility
for the property is established. From that point onwards, mineral
property assets are tested for impairment using the impairment
indicators of IAS 36 “Impairment of
Assets”.
Post-employment
benefit obligations
The Company
assumed the obligation of a predecessor company to provide life
insurance, supplemental health care and dental benefits, excluding
pensions, to its former Canadian employees who retired from active
service prior to 1997. The estimated cost of providing these
benefits is actuarially determined using the projected benefits
method and is recorded on the balance sheet at its estimated
present value. The interest cost on this unfunded liability is
being accreted over the remaining lives of this retiree group.
Experience gains and losses are being deferred as a component of
accumulated other comprehensive income or loss and are adjusted, as
required, on the obligations re-measurement date.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Stock-based
compensation
The Company uses
a fair value-based method of accounting for stock options to
employees and to non-employees. The fair value is determined using
the Black-Scholes option pricing model on the date of the grant.
The cost is recognized on a graded method basis, adjusted for
expected forfeitures, over the applicable vesting period as an
increase in stock-based compensation expense and the contributed
surplus account. When such stock options are exercised, the
proceeds received by the Company, together with the respective
amount from contributed surplus, are credited to share
capital.
The Company also
has a share unit plan pursuant to which it may grant share units to
employees – the share units are equity-settled awards. The
Company determines the fair value of the awards on the date of
grant. The cost is recognized on a graded method basis, adjusted
for expected forfeitures, over the applicable vesting period as an
increase in share-based compensation expense and the contributed
surplus account. When such share units are settled for common
shares, the applicable amounts of contributed surplus are credited
to share capital.
Termination
benefits
The Company
recognizes termination benefits when it is demonstrably committed
to either terminating the employment of current employees according
to a detailed formal plan without possibility of withdrawal, or
providing benefits as a result of an offer made to encourage
voluntary termination. Benefits falling due more than twelve months
after the end of the reporting period are discounted to their
present value.
J.
Reclamation
provisions
Reclamation
provisions, any legal and constructive obligation related to the
retirement of tangible long-lived assets, are recognized when such
obligations are incurred and if a reasonable estimate of the value
can be determined. These obligations are measured initially at the
present value of expected cash flows using a pre-tax discount rate
reflecting risks specific to the liability and the resulting costs
are capitalized and added to the carrying value of the related
assets. In subsequent periods, the liability is adjusted for the
accretion of the discount and the expense is recorded in the
statement of income or loss. Changes in the amount or timing of the
underlying future cash flows or changes in the discount rate are
immediately recognized as an increase or decrease in the carrying
amounts of the related asset and liability. These costs are
amortized to the results of operations over the life of the asset.
Reductions in the amount of the liability are first applied against
the amount of the net reclamation asset on the books with any
excess value being recorded in the statement of income or
loss.
The
Company’s activities are subject to numerous governmental
laws and regulations. Estimates of future reclamation liabilities
for asset decommissioning and site restoration are recognized in
the period when such liabilities are incurred. These estimates are
updated on a periodic basis and are subject to changing laws,
regulatory requirements, changing technology and other factors
which will be recognized when appropriate. Liabilities related to
site restoration include long-term treatment and monitoring costs
and incorporate total expected costs net of recoveries.
Expenditures incurred to dismantle facilities, restore and monitor
closed resource properties are charged against the related
reclamation liability.
Provisions for
restructuring costs and legal claims, where applicable, are
recognized in liabilities when the Company has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and the amount can be reliably estimated. Provisions
are measured at management’s best estimate of the expenditure
required to settle the obligation at the end of the reporting
period, and are discounted to present value where the effect is
material. The Company performs evaluations to identify onerous
contracts and, where applicable, records provisions for such
contracts.
L.
Current
and deferred Income tax
Current income
tax payable is based on taxable income for the period. Taxable
income differs from income as reported in the statement of income
or loss because it excludes items of income or expense that are
taxable or deductible in other periods and it further excludes
items that are never taxable or deductible. The Company’s
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Deferred income
taxes are accounted for using the balance sheet liability method.
Deferred income tax assets and liabilities are computed based on
temporary differences between the financial statement carrying
values of the existing assets and liabilities and their respective
income tax bases used in the computation of taxable income.
Computed deferred tax liabilities are generally recognized for all
taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that taxable income
will be available against which deductible temporary differences
can be utilized. Such assets and liabilities are not recognized if
the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
income nor the accounting income. Deferred tax liabilities are
recognized for taxable temporary differences arising on investments
in subsidiaries and investments, and interests in joint ventures,
except where the Company is able to control the reversal of the
temporary differences and it is probable that the temporary
differences will not reverse in the foreseeable future. The
carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable
that sufficient taxable earnings will be available to allow all or
part of the asset to be recovered.
Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realized, based
on tax rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax is charged or
credited to income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
recorded within equity.
Income tax assets
and liabilities are offset when there is a legally enforceable
right to offset the assets and liabilities and when they relate to
income taxes levied by the same tax authority on either the same
taxable entity or different taxable entities where there is an
intention to settle the balance on a net basis.
M.
Flow-through
common shares
The
Company’s Canadian exploration activities have been financed
in part through the issuance of flow-through common shares whereby
the Canadian income tax deductions relating to these expenditures
are claimable by the subscribers and not by the Company. The
proceeds from issuing flow-through shares are allocated between the
offering of shares and the sale of tax benefits. The allocation is
based on the difference (“premium”) between the quoted
price of the Company’s existing shares and the amount the
investor pays for the actual flow-through shares. A liability is
recognized for the premium when the shares are issued, and is
extinguished when the tax effect of the temporary differences,
resulting from the renunciation of the tax deduction to the
flow-through shareholders, is recorded - with the difference
between the liability and the value of the tax assets renounced
being recorded as a deferred tax expense. The tax effect of the
renunciation is recorded at the time the Company makes the
renunciation to its subscribers – which may differ from the
effective date of renunciation. If the flow-through shares are not
issued at a premium, a liability is not established, and on
renunciation the full value of the tax assets renounced is recorded
as a deferred tax expense.
Revenue
from pre-sold toll milling services
Revenue from the
pre-sale of toll milling arrangement cash flows is recognized as
the toll milling services are provided. At contract inception, the
Company estimates the expected transaction price of the toll
milling services being sold based on available information and
calculates an average per unit transaction price that applies over
the life of the contract. This unit price is used to draw-down the
deferred revenue balance as the toll milling services occur. When
changes occur to the timing, or volume of toll milling services,
the per unit transaction price is adjusted to reflect the change
(such review to be done annually, at a minimum), and a cumulative
catch up adjustment is made to reflect the updated rate. The amount
of the upfront payment received from the toll milling pre-sale
arrangements includes a significant financing component due to the
longer term nature of such agreements. As such, the Company also
recognizes accretion expense on the deferred revenue balance which
is recorded in net income through “Finance expense,
net”.
Revenue
from environmental services (i.e. DES)
Environmental
service contracts represent a series of distinct performance
obligations that are substantially the same and have the same
pattern of transfer of control to the customer. The transaction
price is estimated at contract inception and, is recognized over
the life of the contract as control is transferred to the customer.
Variable consideration, where applicable, is estimated at contract
inception using either the expected value method or the most likely
amount method. If it is highly probable that a subsequent reversal
of revenue will not occur when the uncertainty has been resolved,
the Company will recognize as revenue the estimated transaction
price, including the estimate of the variable portion, upon
transfer of control to the customer. Where it is determined that it
is highly probable that a subsequent reversal of revenue will occur
upon the resolution of the uncertainty, the variable portion of the
transaction price will be constrained, and will not be recognized
as revenue until the uncertainty has been resolved.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Revenue
from management services (i.e. UPC)
The management
services arrangement with UPC represents a series of distinct
performance obligations that are substantially the same and have
the same pattern of transfer of control to the customer. The
transaction price for the contract is estimated at contract
inception and is recognized over the life of the contract as
control is transferred to the customer as the services are
provided. The variable consideration related to the net asset value
(“NAV”) based management fee was estimated at contract
inception using the expected value method. It was determined that
it is highly probable that a subsequent reversal of revenue would
occur if the variable consideration was included in the transaction
price, and as such, the variable portion of the transaction price
will be measured and recognized when the uncertainty has been
resolved (i.e. when the actual NAV has been
calculated).
Commission
revenue earned on acquisition or sale of U
3
O
8
and
UF
6
on
behalf of UPC (or other parties where Denison acts as an agent) is
recognized when control of the related U
3
O
8
or UF
6
passes to the
customer, which is the date when title of the U
3
O
8
and
UF
6
passes.
Revenue
from spot sales of uranium
In a uranium
supply arrangement, the Company is contractually obligated to
provide uranium concentrates to the customer. Each delivery is
considered a separate performance obligation under the contract
– revenue is measured based on the transaction price
specified in the contract and the Company recognizes revenue when
control to the uranium has been transferred to the
customer.
Uranium can be
delivered either to the customer directly (physical deliveries) or
notionally under title within a uranium storage facility (notional
deliveries). For physical deliveries to customers, the terms in the
supply arrangement specify the location of delivery and revenue is
recognized when control transfers to the customer which is
generally when the uranium has been delivered and accepted by the
customer at that location. For notional deliveries at a uranium
storage facility, revenue is recognized on the date that the
Company specifies the storage facility to transfer title of a
contractually specified quantity of uranium to a customer’s
account at the storage facility.
O.
Earnings
(loss) per share
Basic earnings
(loss) per share (“EPS”) is calculated by dividing the
net income or loss for the period attributable to equity owners of
DMC by the weighted average number of common shares outstanding
during the period.
Diluted EPS is
calculated by adjusting the weighted average number of common
shares outstanding for dilutive instruments. The number of shares
included with respect to options, warrants and similar instruments
is computed using the treasury stock method.
P.
Discontinued
operations
A discontinued
operation is a component of the Company that has either been
disposed of or that is classified as held for sale. A component of
the Company is comprised of operations and cash flows that can be
clearly distinguished, operationally and for financial reporting
purposes, from the rest of the Company. Net income or loss of a
discontinued operation and any gain or loss on disposal are
combined and presented as net income or loss from discontinued
operations, net of tax, in the statement of income or
loss.
Accounting
changes for fiscal 2018
Effective January
1, 2018, the Company changed it’s presentation currency and
adopted two new accounting standards, IFRS 9 and IFRS 15. Refer to
note 5 for a summary of the impact of these changes on the
consolidated financial statements. Qualitative details of the
changes are as follows:
A.
Change in
Presentation Currency
Effective January
1, 2018, the Company changed its presentation currency to CAD from
USD. This change in presentation currency was made to better
reflect the Company’s current business activities, which are
now predominantly focused in Canada following the disposal of the
Company’s African and Asia mining segments in fiscal 2016 and
2015, respectively.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The consolidated
financial statements for all periods presented in the annual
financial statements are in CAD. The majority of the
Company’s current entities, including all of its operating
entities, have CAD as their functional currency so their functional
currency financial statement amounts have been carried forward into
the consolidated results. The financial statements of entities with
a functional currency of USD have been translated into CAD in
accordance with IAS 21, “The Effects of Changes in Foreign
Exchange Rates”, as follows:
●
Assets and liabilities
presented and previously reported in USD have been translated into
CAD using period-end exchange rates of 1.3426 (January 1, 2017) and
1.2545 (December 31, 2017);
●
Consolidated statements of
income and other comprehensive income have been translated using
average foreign exchange rates prevailing during the reporting
periods which ranged from 1.2528 to 1.3449;
●
Investment in associates and
shareholder’s equity balances have been translated using
historical foreign exchange rates in effect on the date that
transactions occurred; and
●
Resulting exchange
differences have been recorded within the foreign currency
translation reserve accounts.
B.
Adoption
of IFRS 9 Financial Instruments (“IFRS 9”)
On adoption of
IFRS 9, Denison elected not to measure any of its equity
instruments using the fair value through other comprehensive income
(“FVTOCI”) approach and instead chose to use the fair
value through profit and loss (“FVTPL”) measurement
method. Previously, under IAS 39, the Company had classified a
subset of its equity instruments as “available for
sale” and recognized unrealized gains or losses on these
investments in other comprehensive income (loss), similar to the
FVTOCI approach under IFRS 9.
The Company
adopted the provisions of IFRS 9 on January 1, 2018 and has applied
the amendment retrospectively, through an adjustment to its opening
equity as at January 1, 2017, reflecting a reclassification of the
FVTOCI amount previously included in accumulated other
comprehensive income (“AOCI”) to Deficit. Any
subsequent changes in AOCI for changes in FVTOCI during fiscal 2017
have been reversed and reflected as a component of net income
(loss) for the period.
There were no
other material amounts arising from the adoption of IFRS
9.
C.
Adoption
of IFRS 15 Revenue from Contracts with Customers (“IFRS
15”)
IFRS 15 replaced
IAS 18 “Revenue” and IAS 11 ”Construction
Contracts” and related interpretations.
The Company
reviewed its revenue recognition policies related to its UPC
management services and its DES care and maintenance services and
determined that no changes in timing or measurement of the revenue
previously recognized were required on adoption of IFRS
15.
In its review of
toll milling revenue recognition and its arrangement with Anglo
Pacific Group PLC and its subsidiaries (the “APG
Arrangement” and “APG”, respectively – see
note 12), the Company determined that the adoption of IFRS 15
required a change to the Company’s accounting policy for
deferred revenue associated with the APG Arrangement. Previously,
the Company amortized the net proceeds of the APG Arrangement into
revenue, on a pro-rata basis, based on the actual cash receipts
from toll milling received in the period as a percentage of the
total remaining undiscounted cash receipts expected to be received
over the life of the arrangement. IFRS 15 requires that the APG
deferred revenue be separated into a revenue component and a
financing component. The transaction price associated with the
revenue component is considered “variable”
consideration under the standard. The transaction price has
initially been measured at the transaction date as the aggregate of
the net proceeds from the APG Arrangement and the expected
financing charges to be incurred over the contract life, and is
subsequently remeasured as changes to the timing or volume of the
toll milling production profile occur. Revenue is recognized into
net income (loss) based on the average toll milling drawdown rate
multiplied by toll milling production during the period. The
average toll milling drawdown rate is computed based on estimates
of the transaction price over the life of the contract divided by
the estimated toll milling production to be delivered over the life
of the contract. Changes in the estimated average toll milling
drawdown rate are required to be retroactively adjusted each period
with a cumulative adjustment to revenue. The financing component,
computed annually, is based upon the discount rate applicable to
the APG Arrangement up-front fee received multiplied by the
outstanding deferred revenue liability amount.
The Company
adopted the provisions of IFRS 15 on January 1, 2018 and has
applied the provisions of IFRS 15 on a full retrospective basis.
This retrospective adoption has resulted in adjustments to increase
revenues and finance expenses associated with the APG Arrangement,
starting at the inception of the APG Arrangement in February 2017,
with the resulting net income (loss) impact being partly offset by
the recognition of additional deferred tax recoveries.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Accounting
changes for fiscal 2019
A.
IFRS 16
Leases (“IFRS 16”)
IFRS 16 requires
lessees to recognize assets and liabilities for most leases. Under
current standards, the Company expenses its lease payments.
Application of IFRS 16 is mandatory for reporting periods beginning
on or after January 1, 2019. The Company expects the adoption of
IFRS 16 to result in the following: a) increased reported assets
and liabilities; b) increased depreciation and accretion expense
and decreased lease expense within the statement of income (loss);
and c) decreased cash outflows from operations and increased cash
outflows from financing as lease payments will be recorded as
financing outflows in the cash flow statement. Assessments of the
magnitude of the above impacts of adopting the standard are
ongoing.
Comparative
numbers
Certain
classifications of the comparative figures have been changed to
conform to those used in the current period.
4.
CRITICAL
ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation
of consolidated financial statements in accordance with IFRS
requires the use of certain critical accounting estimates and
judgements that affect the amounts reported. It also requires
management to exercise judgement in applying the Company’s
accounting policies. These judgements and estimates are based on
management’s best knowledge of the relevant facts and
circumstances taking into account previous experience. Although the
Company regularly reviews the estimates and judgements made that
affect these financial statements, actual results may be materially
different.
Significant
estimates and judgements made by management relate to:
A.
Determination
of a mineral property being sufficiently advanced
The Company
follows a policy of capitalizing non-exploration related
expenditures on properties it considers to be sufficiently
advanced. Once a mineral property is determined to be sufficiently
advanced, that determination is irrevocable and the capitalization
policy continues to apply over the life of the property. In
determining whether or not a mineral property is sufficiently
advanced, management considers a number of factors, including, but
not limited to: current uranium market conditions, the quality of
resources identified, access to the resource, the suitability of
the resource to current mining methods, ease of permitting,
confidence in the jurisdiction in which the resource is located and
milling complexity.
Many of these
factors are subject to risks and uncertainties that can support a
“sufficiently advanced” determination as at one point
in time but not support it at another. The final determination
requires significant judgment on the part of the Company’s
management and directly impacts the carrying value of the
Company’s mineral properties.
B.
Mineral
property impairment reviews and impairment adjustments
Mineral
properties are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. When an indicator is identified, the Company
determines the recoverable amount of the property, which is the
higher of an asset’s fair value less costs of disposal or
value in use. An impairment loss is recognized if the carrying
value exceeds the recoverable amount. The recoverable amount of a
mineral property may be determined by reference to estimated future
operating results and discounted net cash flows, current market
valuations of similar properties or a combination of the above. In
undertaking this review, management of the Company is required to
make significant estimates of, amongst other things: reserve and
resource amounts, future production and sale volumes, forecast
commodity prices, future operating, capital and reclamation costs
to the end of the mine’s life and current market valuations
from observable market data which may not be directly comparable.
These estimates are subject to various risks and uncertainties,
which may ultimately have an effect on the expected recoverable
amount of a specific mineral property asset. Changes in these
estimates could have a material impact on the carrying value of the
mineral property amounts and the impairment losses
recognized.
C.
Deferred
revenue – pre-sold toll milling
In February 2017,
Denison closed an arrangement with APG. Under the arrangement,
Denison monetized its right to receive future toll milling cash
receipts from July 1, 2016 onwards from the MLJV under the current
toll milling agreement with the CLJV (see note 14) for an upfront
cash payment. The APG Arrangement consisted of a loan structure and
a stream arrangement. Significant judgement was required to
determine whether the APG Arrangement should be accounted for as a
financial obligation (i.e. debt) or deferred revenue.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Key factors that
support the deferred revenue conclusion reached by management
include, but are not limited to: a) Limited recourse loan structure
– amounts due to APG are generally repayable only to the
extent of Denison’s share of the toll milling revenues earned
by the MLJV from the processing of the first 215 million pounds of
U
3
O
8
from the Cigar
Lake mine on or after July 1, 2016, under the terms of the current
Cigar Lake toll milling agreement; and b) No warranty of the future
rate of production - no warranty is provided by Denison to APG
regarding the future rate of production at the Cigar Lake mine and
/ or the McClean Lake mill, or the amount and / or collectability
of cash receipts to be received by the MLJV in respect of toll
milling of Cigar Lake ore.
D.
Deferred
revenue – pre-sold toll milling – revenue
recognition
In February 2017,
Denison closed the APG Arrangement and effectively monetized its
right to receive specified future toll milling cash receipts from
the MLJV related to the current toll milling agreement with the
CLJV. In exchange, Denison received a net up-front payment of
$39,980,000 which has been accounted for as a deferred revenue
liability as at the transaction close date (see note
14).
Under IFRS 15,
the Company is required to recognize a revenue component and a
financing component as it draws down the deferred revenue
associated with the APG Arrangement over the life of the specified
toll milling production included in the APG Arrangement. In
estimating both of these components, the Company is required to
make assumptions relating to the future toll milling production
volume associated with Cigar Lake Phase 1 and 2 ore reserves and
resources (to end of mine life) and estimates of the annual timing
of that production. Changes in these estimates affect the
underlying production profile which in turn affects the average
toll milling drawdown rate used to recognize revenue.
When the average
toll milling drawdown rate is changed, the impact is reflected on a
life-to-date production basis with a retroactive adjustment to
revenue recorded in the current period. Going forward, each time
the Company updates its estimates of the underlying production
profile for the APG Arrangement (typically in the quarter that
information relating to Cigar Lake uranium resource updates and /
or production schedules becomes publicly available), retroactive
adjustments to revenue will be recorded in the period that the
revised estimate is determined – such adjustments, which are
non-cash in nature, could be material.
E.
Deferred
tax assets and liabilities
Deferred tax
assets and liabilities are computed in respect of taxes that are
based on taxable profit. Taxable profit will often differ from
accounting profit and management may need to exercise judgement to
determine whether some taxes are income taxes (and subject to
deferred tax accounting) or operating expenses.
Deferred tax
assets and liabilities are measured using enacted or substantively
enacted tax rates expected to apply when the temporary differences
between accounting carrying values and tax basis are expected to be
recovered or settled. The determination of the ability of the
Company to utilize tax loss carry forwards to offset deferred tax
liabilities requires management to exercise judgment and make
certain assumptions about the future performance of the Company.
Management is required to assess whether it is
“probable” that the Company will benefit from these
prior losses and other deferred tax assets. Changes in economic
conditions, commodity prices and other factors could result in
revisions to the estimates of the benefits to be realized or the
timing of utilizing the losses.
F.
Reclamation
obligations
Asset retirement
obligations are recorded as a liability when the asset is initially
constructed or a constructive or legal obligation exists and
typically involve identifying costs to be incurred in the future
and discounting them to the present using an appropriate discount
rate for the liability. The determination of future costs involves
a number of estimates relating to timing, type of costs, mine
closure plans, and review of potential methods and technical
advancements. Furthermore, due to uncertainties concerning
environmental remediation, the ultimate cost of the Company’s
decommissioning liability could differ materially from amounts
provided. The estimate of the Company’s obligation is subject
to change due to amendments to applicable laws and regulations and
as new information concerning the Company’s operations
becomes available. The Company is not able to determine the impact
on its financial position, if any, of environmental laws and
regulations that may be enacted in the future.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
5.
CHANGE IN
PRESENTATION CURRENCY AND ADOPTION OF NEW STANDARDS
The impact of the
changes in presentation currency and the adoption of new accounting
pronouncements (see note 3) on the consolidated financial
statements is as follows:
Consolidated
Statement of Financial Position – As at January 1,
2017
|
|
Previously
|
|
|
|
|
|
|
|
|
Reported
|
|
Reported
|
|
IFRS
|
|
Restated
|
(in
thousands)
|
|
in
USD
|
|
in
CAD
|
|
Adoption
|
|
CAD
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
|
$
|
17,113
|
$
|
22,976
|
$
|
-
|
$
|
22,976
|
Non-Current
|
|
200,310
|
|
268,657
|
|
-
|
|
268,657
|
Total
assets
|
|
217,423
|
|
291,633
|
|
-
|
|
291,633
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
|
$
|
7,260
|
$
|
9,749
|
$
|
-
|
$
|
9,749
|
Non-Current
|
|
37,452
|
|
50,282
|
|
-
|
|
50,282
|
Total
liabilities
|
|
44,712
|
|
60,031
|
|
-
|
|
60,031
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share
capital
|
$
|
1,140,631
|
$
|
1,295,235
|
$
|
-
|
$
|
1,295,235
|
Share purchase
warrants
|
|
-
|
|
-
|
|
-
|
|
-
|
Contributed
surplus
|
|
54,306
|
|
60,612
|
|
-
|
|
60,612
|
Deficit
|
|
|
|
|
|
|
|
|
Opening
|
|
(961,440)
|
|
(1,124,532)
|
|
9
(1)
|
|
(1,124,523)
|
Accumulated other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Cumulative
foreign currency translation
|
|
(61,371)
|
|
(446)
|
|
-
|
|
(446)
|
Unamortized
experience gain
|
|
578
|
|
724
|
|
-
|
|
724
|
Unrealized gain
on investments
|
|
7
|
|
9
|
|
(9)
(1)
|
|
-
|
Total
equity
|
|
172,711
|
|
231,602
|
|
-
|
|
231,602
|
Total liabilities
and equity
|
$
|
217,423
|
$
|
291,633
|
$
|
-
|
$
|
291,633
|
(1)
Represents adjustments
related to the adoption of IFRS 9 (see note 3).
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated
Statement of Financial Position – As at December 31,
2017
|
|
Previously
|
|
|
|
|
|
|
|
|
Reported
|
|
Reported
|
|
IFRS
|
|
Restated
|
(in
thousands)
|
|
in
USD
|
|
in
CAD
|
|
Adoption
|
|
CAD
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
|
$
|
40,135
|
$
|
50,352
|
$
|
-
|
$
|
50,352
|
Non-Current
|
|
219,933
|
|
275,948
|
|
-
|
|
275,948
|
Total
assets
|
|
260,068
|
|
326,300
|
|
-
|
|
326,300
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
$
|
2,498
|
$
|
3,134
|
$
|
1,802
(2)
|
$
|
4,936
|
All other current
liabilities
|
|
8,497
|
|
10,660
|
|
-
|
|
10,660
|
|
|
10,995
|
|
13,794
|
|
1,802
|
|
15,596
|
Non-Current
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
27,181
|
|
34,100
|
|
(384)
(2)
|
|
33,716
|
Deferred income
tax liability
|
|
14,182
|
|
17,792
|
|
(370)
(3)
|
|
17,422
|
All other
non-current liabilities
|
|
23,758
|
|
29,805
|
|
-
|
|
29,805
|
|
|
65,121
|
|
81,697
|
|
(754)
|
|
80,943
|
Total
liabilities
|
|
76,116
|
|
95,491
|
|
1,048
|
|
96,539
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share
capital
|
$
|
1,151,927
|
$
|
1,310,473
|
$
|
-
|
$
|
1,310,473
|
Share purchase
warrants
|
|
333
|
|
435
|
|
-
|
|
435
|
Contributed
surplus
|
|
55,165
|
|
61,799
|
|
-
|
|
61,799
|
Deficit
|
|
|
|
|
|
|
|
|
Opening
|
|
(961,440)
|
|
(1,124,532)
|
|
9
(1)
|
|
(1,124,523)
|
Net income
(loss)
|
|
(14,168)
|
|
(18,520)
|
|
5
(1)
|
|
|
|
|
|
|
|
|
(1,418)
(2)
|
|
|
|
|
|
|
|
|
370
(3)
|
|
(19,563)
|
Accumulated other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Cumulative
foreign currency translation
|
|
(48,454)
|
|
416
|
|
-
|
|
416
|
Unamortized
experience gain
|
|
578
|
|
724
|
|
-
|
|
724
|
Unrealized gain
on investments
|
|
11
|
|
14
|
|
(14)
(1)
|
|
-
|
Total
equity
|
|
183,952
|
|
230,809
|
|
(1,048)
|
|
229,761
|
Total liabilities
and equity
|
$
|
260,068
|
$
|
326,300
|
$
|
-
|
$
|
326,300
|
(1)
Represents adjustments
related to the adoption of IFRS 9 (see note 3);
(2)
Represents adjustments
related to the adoption of IFRS 15 (see note 3); and
(3)
Represents adjustments
related to the tax impact of the adoption of IFRS 15 (see note
3).
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated
Statement of Income (Loss) and Comprehensive Income (Loss) –
year ended December 31, 2017
|
|
Previously
|
|
|
|
|
|
|
|
|
Reported
|
|
Reported
|
|
IFRS
|
|
Restated
|
(in
thousands)
|
|
in
USD
|
|
in
CAD
|
|
Adoption
|
|
CAD
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
11,085
|
$
|
14,370
|
$
|
1,697
(2)
|
$
|
16,067
|
|
|
|
|
|
|
|
|
|
Other income
(expense)
(3)
|
|
1,599
|
|
1,990
|
|
5
(1)
|
|
1,995
|
Finance income
(expense)
|
|
(858)
|
|
(1,111)
|
|
(3,115)
(2)
|
|
(4,226)
|
Deferred income
tax recovery (expense)
|
|
3,638
|
|
4,796
|
|
370
(2)
|
|
5,166
|
|
|
|
|
|
|
|
|
|
Net loss for the
period
|
$
|
(14,168)
|
$
|
(18,520)
|
$
|
(1,043)
|
$
|
(19,563)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on investments
|
|
4
|
|
5
|
|
(5)
(1)
|
|
-
|
Foreign currency
translation change
|
|
12,917
|
|
862
|
|
-
|
|
862
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss) for the period
|
$
|
(1,247)
|
$
|
(17,653)
|
$
|
(1,048)
|
$
|
(18,701)
|
(1)
Represents adjustments
related to the adoption of IFRS 9;
(2)
Represents before tax and tax
adjustments related to the adoption of IFRS 15; and
(3)
The amount reported
separately as “Foreign exchange” has been grouped into
“Other income (expense)” to be consistent with the
presentation for fiscal 2018.
Consolidated
Statement of Cash Flow – year ended December 31,
2017
|
|
Previously
|
|
|
|
|
|
|
|
|
Reported
|
|
Reported
|
|
IFRS
|
|
Restated
|
(in
thousands)
|
|
in
USD
|
|
in
CAD
|
|
Adoption
|
|
CAD
|
|
|
|
|
|
|
|
|
|
Net cash provided
by operating activities
|
$
|
12,380
|
|
16,875
|
|
-
|
|
16,875
|
Net cash used in
investing activities
|
|
(35,502)
|
|
(47,724)
|
|
-
|
|
(47,724)
|
Net cash provided
by financing activities
|
|
13,743
|
|
18,591
|
|
-
|
|
18,591
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents
|
|
(9,379)
|
|
(12,258)
|
|
-
|
|
(12,258)
|
|
|
|
|
|
|
|
|
|
Foreign exchange
effect on cash and equivalents
|
|
439
|
|
-
|
|
-
|
|
-
|
Cash and
equivalents, beginning of period
|
|
11,838
|
|
15,894
|
|
-
|
|
15,894
|
|
|
|
|
|
|
|
|
|
Cash and
equivalents, end of period
|
$
|
2,898
|
$
|
3,636
|
$
|
-
|
$
|
3,636
|
6.
DISCONTINUED
OPERATIONS
Discontinued
operation – Africa Mining Division
The 2017
discontinued operations loss of $109,000 reflects additional
transaction costs incurred by the Company for professional fees
related to the sale of the Africa Mining Division to GoviEx Uranium
Inc. (“GoviEx”) in June 2016.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The condensed
consolidated statement of income (loss) for the Africa Mining
Division discontinued operation for 2018 and 2017 is as
follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net loss for the
period
|
|
|
|
|
|
-
|
|
-
|
Loss on
disposal
|
|
|
|
|
|
-
|
|
(109)
|
Loss from
discontinued operations
|
|
|
|
|
$
|
-
|
$
|
(109)
|
Cash flows for
the Africa Mining Division discontinued operation for 2018 and 2017
is as follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Cash inflow (outflow):
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
$
|
-
|
$
|
-
|
Investing
activities
|
|
|
|
|
|
-
|
|
(109)
|
Net cash outflow
for the period
|
|
|
|
|
$
|
-
|
$
|
(109)
|
7.
CASH AND
CASH EQUIVALENTS
The cash and cash
equivalent balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Cash
|
$
|
1,152
|
$
|
2,717
|
$
|
6,927
|
Cash in MLJV and
MWJV
|
|
654
|
|
913
|
|
1,557
|
Cash
equivalents
|
|
21,401
|
|
6
|
|
7,410
|
|
$
|
23,207
|
$
|
3,636
|
$
|
15,894
|
Cash equivalents
consist of various investment savings account instruments and money
market funds all of which are short term in nature, highly liquid
and readily convertible into cash.
8.
TRADE AND
OTHER RECEIVABLES
The trade and
other receivables balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Trade
receivables
|
$
|
2,952
|
$
|
3,999
|
$
|
2,406
|
Receivables in
MLJV and MWJV
|
|
571
|
|
640
|
|
783
|
Sales tax
receivables
|
|
98
|
|
84
|
|
23
|
Sundry
receivables
|
|
201
|
|
68
|
|
14
|
Loan receivable
(note 25)
|
|
250
|
|
-
|
|
-
|
|
$
|
4,072
|
$
|
4,791
|
$
|
3,226
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The inventories
balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Uranium
concentrates
|
$
|
526
|
$
|
526
|
$
|
526
|
Inventory of ore
in stockpiles
|
|
2,098
|
|
2,098
|
|
2,098
|
Mine and mill
supplies in MLJV
|
|
3,058
|
|
2,928
|
|
2,670
|
|
$
|
5,682
|
$
|
5,552
|
$
|
5,294
|
|
|
|
|
|
|
|
Inventories-by
balance sheet presentation:
|
|
|
|
|
|
|
Current
|
$
|
3,584
|
$
|
3,454
|
$
|
3,196
|
Long term-ore in
stockpiles
|
|
2,098
|
|
2,098
|
|
2,098
|
|
$
|
5,682
|
$
|
5,552
|
$
|
5,294
|
Long-term ore in
stockpile inventory represents an estimate of the amount of ore on
the stockpile in excess of the next twelve months of planned mill
production.
The investments
balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
Debt
instrument
|
$
|
-
|
$
|
37,807
|
$
|
-
|
Equity
instruments
|
|
2,255
|
|
7,359
|
|
5,049
|
|
$
|
2,255
|
$
|
45,166
|
$
|
5,049
|
|
|
|
|
|
|
|
Investments-by
balance sheet presentation:
|
|
|
|
|
|
|
Current
|
$
|
-
|
$
|
37,807
|
$
|
-
|
Long-term
|
|
2,255
|
|
7,359
|
|
5,049
|
|
$
|
2,255
|
$
|
45,166
|
$
|
5,049
|
The
investments continuity summary is as follows:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Balance-January
1
|
|
|
$
|
45,166
|
$
|
5,049
|
Purchases
|
|
|
|
|
|
|
Equity
instruments
|
|
|
|
-
|
|
200
|
Debt
instruments
|
|
|
|
-
|
|
40,000
|
Sales /
redemptions
|
|
|
|
|
|
|
Debt
instruments
|
|
|
|
(37,500)
|
|
(2,500)
|
Fair value (loss)
gain to profit and loss
|
|
|
|
(5,411)
|
|
2,417
|
Balance-December
31
|
|
|
$
|
2,255
|
$
|
45,166
|
Equity
instruments consists of shares and warrants in publicly-traded
companies. Debt instruments at December 31, 2017 consisted of a 5
year redeemable guaranteed investment certificate
(“GIC”) with guaranteed early redemption rates of
interest ranging between 0.25% and 1.60% per annum. The GIC was
fully redeemed in 2018.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Investment
purchases, sales, impairments and other movements
During 2018, the
Company redeemed GIC debt instruments of $37,500,000.
During 2017, the
Company purchased GIC debt instruments at a cost of $40,000,000 and
it purchased additional equity instruments in Skyharbour Resources
Ltd (“Skyharbour”) at a cost of $200,000.
During 2017, the
Company redeemed GIC debt instruments of $2,500,000.
11.
INVESTMENT
IN ASSOCIATES
The investment in
associates balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Investment in
associates-by investee:
|
|
|
|
|
|
|
GoviEx
|
$
|
5,582
|
$
|
5,305
|
$
|
6,011
|
|
$
|
5,582
|
$
|
5,305
|
$
|
6,011
|
A summary of the
investment in GoviEx is as follows:
(in thousands
except share amounts)
|
|
|
|
Number
of Common Shares
|
|
|
|
|
|
|
|
|
|
Balance-January
1, 2017
|
|
|
|
65,144,021
|
$
|
6,011
|
Share of equity
loss
|
|
|
|
-
|
|
(1,015)
|
Dilution
gain
|
|
|
|
-
|
|
309
|
Balance-December
31, 2017
|
|
|
|
65,144,021
|
$
|
5,305
|
|
|
|
|
|
|
|
Share of equity
loss
|
|
|
|
-
|
|
(472)
|
Dilution
gain
|
|
|
|
-
|
|
749
|
Balance-December
31, 2018
|
|
|
|
65,144,021
|
$
|
5,582
|
GoviEx is a
mineral resource company focused on the exploration and development
of its uranium properties located in Africa. GoviEx maintains a
head office located in Canada and is a public company listed on the
TSX Venture Exchange. At December 31, 2018, Denison holds an
approximate 16.21% interest in GoviEx based on publicly available
information (December 31, 2017: 18.72%) and has one director
appointed to the GoviEx board of directors. Through the extent of
its share ownership interest and its seat on the board of
directors, Denison has the ability to exercise significant
influence over GoviEx and accordingly, is using the equity method
to account for this investment.
The trading price
of GoviEx on December 31, 2018 was $0.15 per share which
corresponds to a quoted market value of $9,772,000 (December 31,
2017: $17,589,000) for the Company’s investment in GoviEx
common shares.
The following
table is a summary of the consolidated financial information of
GoviEx on a 100% basis taking into account adjustments made by
Denison for equity accounting purposes for fair value adjustments
and differences in accounting policy. Denison records its equity
investment entries in GoviEx one quarter in arrears (due to the
information not yet being publicly available), adjusted for any
subsequent material publicly disclosed share issuance transactions
that have occurred. A reconciliation of GoviEx’s summarized
information to Denison’s investment carrying value is also
included.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
At December
31
|
|
At December
31
|
(in thousands of
USD dollars)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
$
|
4,800
|
$
|
6,978
|
Total non-current
assets
|
|
|
|
32,432
|
|
24,530
|
Total current
liabilities
|
|
|
|
(8,315)
|
|
(7,792)
|
Total non-current
liabilities
|
|
|
|
-
|
|
(112)
|
Total net
assets
|
|
|
$
|
28,917
|
$
|
23,604
|
|
|
|
|
|
|
|
|
|
|
|
12 Months
Ended
|
|
12 Months
Ended
|
(in thousands of
USD dollars)
|
|
|
|
December
31,2018
|
|
December
31,2017
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
-
|
$
|
-
|
Net
loss
|
|
|
|
(1,892)
|
|
(3,632)
|
Comprehensive
loss
|
|
|
$
|
(1,892)
|
$
|
(3,632)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
GoviEx net assets to Denison investment carrying
value:
|
|
|
Net assets of
GoviEx – beginning of period - USD
|
|
$
|
23,604
|
$
|
20,694
|
Share issue
proceeds
|
|
|
|
6,654
|
|
5,796
|
Contributed
surplus change
|
|
|
|
74
|
|
-
|
Share-based
payment reserve change
|
|
|
|
477
|
|
746
|
Net
loss
|
|
|
|
(1,892)
|
|
(3,632)
|
Net assets of
GoviEx – end of period - USD
|
|
|
$
|
28,917
|
$
|
23,604
|
Denison ownership
interest
|
|
|
|
16.21%
|
|
18.72%
|
Denison share of
net assets of GoviEx
|
|
|
|
4,687
|
|
4,419
|
Other
adjustments
|
|
|
|
(283)
|
|
(216)
|
Investment in
GoviEx – USD
|
|
|
|
4,404
|
|
4,203
|
At historical
exchange rate
|
|
|
|
1.2675
|
|
1.2622
|
Investment in
GoviEx
|
|
|
$
|
5,582
|
$
|
5,305
|
12.
RESTRICTED
CASH AND INVESTMENTS
The Company has
certain restricted cash and investments deposited to collateralize
a portion of its reclamation obligations. The restricted cash and
investments balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
85
|
$
|
3,049
|
$
|
372
|
Investments
|
|
12,170
|
|
9,135
|
|
2,735
|
|
$
|
12,255
|
$
|
12,184
|
$
|
3,107
|
|
|
|
|
|
|
|
Restricted cash
and investments-by item:
|
|
|
|
|
|
|
Elliot Lake
reclamation trust fund
|
$
|
3,120
|
$
|
3,049
|
$
|
2,972
|
Letters of credit
facility pledged assets
|
|
9,000
|
|
9,000
|
|
-
|
Letters of credit
additional collateral
|
|
135
|
|
135
|
|
135
|
|
$
|
12,255
|
$
|
12,184
|
$
|
3,107
|
At December 31,
2018, investments consist of guaranteed investment certificates and
a term deposit with a maturity of more than 90 days.
Elliot
Lake reclamation trust fund
The Company has
the obligation to maintain its decommissioned Elliot Lake uranium
mine pursuant to a Reclamation Funding Agreement effective December
21, 1995 (“Agreement”) with the Governments of Canada
and Ontario. The Agreement, as further amended in February 1999,
requires the Company to maintain funds in the reclamation trust
fund equal to estimated reclamation spending for the succeeding six
calendar years, less interest expected to accrue on the funds
during the period. Withdrawals from this reclamation trust fund can
only be made with the approval of the Governments of Canada and
Ontario to fund Elliot Lake monitoring and site restoration
costs.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
In 2018, the
Company deposited an additional $670,000 into the Elliot Lake
reclamation trust fund and withdrew $633,000. In 2017, the Company
deposited an additional $917,000 into the Elliot Lake reclamation
trust fund and withdrew $873,000.
Letters of
credit facility pledged assets
At December 31,
2018, the Company had on deposit $9,000,000 with the Bank of Nova
Scotia (“BNS”) as pledged restricted cash and
investments pursuant to its obligations under an amended and
extended letters of credit facility (see notes 14, 16 and 17). The
monies were initially deposited in 2017.
Letters of
credit additional collateral
At December 31,
2018, the Company had on deposit an additional $135,000 of cash
collateral with BNS in respect of the portion of its issued
reclamation letters of credit in excess of the collateral available
under its letters of credit facility (see notes 16 and
17).
13.
PROPERTY,
PLANT AND EQUIPMENT
The property,
plant and equipment balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Plant and
equipment:
|
|
|
|
|
|
|
Cost
|
$
|
97,243
|
$
|
96,762
|
$
|
97,477
|
Construction-in-progress
|
|
6,187
|
|
6,424
|
|
6,473
|
Accumulated
depreciation
|
|
(24,086)
|
|
(20,516)
|
|
(16,930)
|
Net book
value
|
$
|
79,344
|
$
|
82,670
|
$
|
87,020
|
|
|
|
|
|
|
|
Mineral
properties:
|
|
|
|
|
|
|
Cost
|
$
|
178,947
|
$
|
166,332
|
$
|
165,372
|
Net book
value
|
$
|
178,947
|
$
|
166,332
|
$
|
165,372
|
Total Net book
value
|
$
|
258,291
|
$
|
249,002
|
$
|
252,392
|
The plant and
equipment continuity summary is as follows:
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Amortization
/
|
|
Net
|
(in
thousands)
|
|
Cost
|
|
Depreciation
|
|
Book
Value
|
|
|
|
|
|
|
|
Plant and
equipment:
|
|
|
|
|
|
|
Balance-January
1, 2017
|
$
|
103,950
|
$
|
(16,930)
|
$
|
87,020
|
Additions
|
|
257
|
|
-
|
|
257
|
Amortization
|
|
-
|
|
(190)
|
|
(190)
|
Depreciation
(note 23)
|
|
-
|
|
(4,371)
|
|
(4,371)
|
Disposals
|
|
(806)
|
|
785
|
|
(21)
|
Reclamation
adjustment (note 16)
|
|
(215)
|
|
190
|
|
(25)
|
Balance-December
31, 2017
|
$
|
103,186
|
$
|
(20,516)
|
$
|
82,670
|
|
|
|
|
|
|
|
Additions
|
|
173
|
|
-
|
|
173
|
Amortization
|
|
-
|
|
(189)
|
|
(189)
|
Depreciation
(note 23)
|
|
-
|
|
(3,661)
|
|
(3,661)
|
Disposals
|
|
(365)
|
|
91
|
|
(274)
|
Reclamation
adjustment (note 16)
|
|
436
|
|
189
|
|
625
|
Balance-December
31, 2018
|
$
|
103,430
|
$
|
(24,086)
|
$
|
79,344
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The mineral
property continuity summary is as follows:
|
|
|
|
Accumulated
|
|
Net
|
(in
thousands)
|
|
Cost
|
|
Amortization
|
|
Book
Value
|
|
|
|
|
|
|
|
Mineral
properties:
|
|
|
|
|
|
|
Balance-January
1, 2017
|
$
|
165,372
|
$
|
-
|
$
|
165,372
|
Additions
|
|
829
|
|
-
|
|
829
|
Impairment
reversal
|
|
331
|
|
-
|
|
331
|
Recoveries
|
|
(200)
|
|
-
|
|
(200)
|
Balance-December
31, 2017
|
$
|
166,332
|
$
|
-
|
$
|
166,332
|
|
|
|
|
|
|
|
Additions
|
|
18,923
|
|
-
|
|
18,923
|
Impairment
expense
|
|
(6,086)
|
|
-
|
|
(6,086)
|
Recoveries
|
|
(222)
|
|
-
|
|
(222)
|
Balance-December
31, 2018
|
$
|
178,947
|
$
|
-
|
$
|
178,947
|
Plant and
Equipment
Canada Mining Segment
The Company has a
22.5% interest in the McClean Lake mill located in the Athabasca
Basin of Saskatchewan, Canada. A toll milling agreement has been
signed with the participants in the CLJV that provides for the
processing of the future output of the Cigar Lake mine at the
McClean Lake mill, for which the owners of the McClean Lake mill
receive a toll milling fee and other benefits. In determining the
units of production amortization rate for the McClean Lake mill,
the amount of production attributable to the mill assets has been
adjusted to include Denison’s expected share of mill feed
related to the CLJV toll milling contract.
Milling
activities in 2017 and 2018 at the McClean Lake mill have been
dedicated to processing and packaging ore from the Cigar Lake
mine.
Environmental Services Segment
The environmental
services division of the Company provides mine decommissioning and
decommissioned site monitoring services for third
parties.
Mineral
Properties
The Company has
various interests in development, evaluation and exploration
projects located in Canada which are held directly or through
option or various contractual agreements.
Canada Mining Segment
As at December
31, 2018, the Company’s mineral property interests with
significant carrying values are (all of the properties below are
located in Saskatchewan):
a)
Wheeler River - the Company
has a 90% interest in the project (includes the Phoenix and Gryphon
deposits);
b)
Waterbury Lake - the Company
has a 65.92% interest in the project (includes the J Zone and
Huskie deposits) and also has a 2.0% net smelter return royalty on
the portion of the project it does not own;
c)
Midwest - the Company has a
25.17% interest in the project (includes the Midwest Main and
Midwest A deposits);
d)
Mann Lake - the Company has a
30% interest in the project;
e)
Wolly - the Company has a
21.89% interest in the project;
f)
Johnston Lake – the
Company has a 100% interest in the project; and
g)
McClean Lake - the Company
has a 22.5% interest in the project (includes the Sue D, Sue E,
Caribou, McClean North and McClean South deposits).
Wheeler
River
In January 2017,
Denison Mines Inc.(“DMI”) executed an agreement
(“2017 Agreement) with the partners of the WRJV to increase
its ownership in the WRJV from 60% up to approximately 66% by the
end of fiscal 2018. Under the terms of the 2017 Agreement, the
partners agreed to allow for a one-time election by Cameco Corp.
(“Cameco”) to fund 50% of its ordinary 30% share of the
WRJV expenses for fiscal 2017 and 2018. The shortfall in
Cameco’s contribution was funded by DMI (with DMI funding 75%
of the WRJV expenses) in exchange for a transfer of a portion of
Cameco’s interest in the WRJV. In 2017, DMI increased its
interest in the WRJV from 60% to 63.3% under the terms of the 2017
Agreement.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
In September
2018, DMC announced an agreement (“2018 Agreement”)
with Cameco to acquire Cameco’s remaining minority interest
in the WRJV. On October 26, 2018, the 2018 Agreement was completed
and DMC acquired Cameco’s then 23.92% remaining interest in
the WRJV in exchange for the issuance of 24,615,000 common shares
of DMC. The shares issued to Cameco are subject to a six month
escrow period during which time Cameco has agreed to not, directly
or indirectly, transfer any of the shares without the prior written
consent of Denison. The transfer of shares is also restricted for a
further six month period, where Denison retains the right, under
certain circumstances, to designate a purchaser upon notice from
Cameco of the intent to transfer or sell all or a portion of the
shares.
In conjunction
with the completion of the 2018 Agreement, the 2017 Agreement was
terminated. At that time, in accordance with the 2017 Agreement,
DMI’s interest in the WRJV was increased from 63.3% to
66.08%. Combined, Denison’s interest in the WRJV is
90%.
Cameco’s
WRJV minority interest acquired by DMC via the 2018 Agreement has
been accounted for as an asset acquisition with share based
consideration. DMC has recorded a total acquisition value of
$17,688,000, including transaction costs of $457,000. The total
acquisition value includes $17,529,000 of share based consideration
which has been valued using Denison’s closing share price on
October 26, 2018 of $0.70 per share.
Waterbury
Lake
In 2017, the
Company increased its interest in the Waterbury Lake property from
63.01% to 64.22% and further increased it again in 2018 to 65.92%
under the terms of the dilution provisions in the agreements
governing the project (see note 25).
Moon Lake
South
In January 2016,
the Company entered into an option agreement with CanAlaska Uranium
Ltd (“CanAlaska”) to earn an interest in
CanAlaska’s Moon Lake South project located in the Athabasca
Basin in Saskatchewan. Under the terms of the option, Denison can
earn an initial 51% interest in the project by spending $200,000 by
December 31, 2017 and it can increase its interest to 75% by
spending an additional $500,000 by December 31, 2020.
As at December
31, 2018, the Company has spent $551,000 under the option and has
earned a 51% interest in the project.
Moore Lak
e
In June 2016, the
Company announced an agreement to option its 100% interest in the
Moore Lake property to Skyharbour Resources Ltd
(“Skyharbour”) in exchange for cash ($500,000 over 5
years), stock (4,500,000 common shares of Skyharbour) and
exploration spending commitments ($3,500,000 over 5 years). The
Moore Lake mineral property carrying value was impaired to its
estimated remaining recoverable amount based on a market-based fair
value less costs of disposal assessment of the share and cash
consideration to be received by the Company under the terms of the
option agreement. The option agreement was closed in August 2016
and Denison received 4,500,000 common shares of Skyharbour on
closing.
In April 2017,
Denison received $200,000 of cash consideration from Skyharbour
under the terms of the option agreement and a recovery of $200,000
was recognized as a reduction of the carrying value of the
property.
In June 2017, the
Company recognized an impairment reversal of $331,000 for Moore
Lake based on an update of the estimated recoverable amount
remaining to be received under the option agreement.
In August 2018,
Denison received the final $300,000 of cash consideration from
Skyharbour, completing all of the commitments required under the
option agreement. In conjunction with the final cash payment
received, Denison recognized a recovery of $212,000 as a reduction
of the remaining carrying value of the property, a gain on disposal
of $88,000 and transferred its 100% ownership interest in Moore
Lake to Skyharbour.
Under the terms
of the option agreement, Denison has various back-in rights to
re-acquire a 51% interest in the Moore Lake property. In August
2018, Skyharbour achieved the required $3,500,000 in expenditures
on the project to trigger the first stage buyback option, which
Denison elected not to exercise. Denison retains a second stage
buyback option on the property until a further $3,000,000 in
expenditures have been incurred on the project by
Skyharbour.
Under the terms
of the option agreement, Denison is also entitled to nominate a
member to Skyharbour’s Board of Directors for as long as
Denison maintains a minimum ownership position of 5%. As at
December 31, 2018, Denison’s ownership interest in Skyharbour
is approximately 8.49% (December 31, 2017: 9.95%).
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Hook
Carter
In November 2016,
Denison completed the purchase of an 80% interest in the
Hook-Carter property, located in the southwestern portion of the
Athabasca Basin region in northern Saskatchewan, from ALX Uranium
Corp (“ALX”), with ALX retaining a 20%
interest.
Under terms in
the agreement, Denison agreed to fund ALX’s share of the
first $12,000,000 in expenditures on the property. Denison also
agreed to a work commitment of $3,000,000 over 3 years –
should Denison not meet this commitment, Denison’s interest
in the property would decrease from 80% to 75% and ALX’s
interest would increase from 20% to 25%.
As at December
31, 2018, the Company has spent $4,926,000 on the project since its
acquisition in November 2016 and has satisfied the terms of the
work commitment condition in the Hook Carter purchase
agreement.
Other
Properties
In December 2018,
due to the Company’s current intention to let various claims
on three of its Canadian properties lapse in the normal course, the
Company has recognized impairment charges of $6,097,000. The
impairment charge has been recognized within the Canada Mining
Segment. The remaining recoverable amount of these three properties
is estimated to be $1,208,000 which reflects the results of a
market-based fair value less costs of disposal assessment completed
using both observable and unobservable inputs, including market
valuations for recent uranium property exchanges, the
Company’s proprietary data about its properties and
management’s interpretation of that data. The Company has
classified its valuation within Level 3 of the fair value
hierarchy. A value in use calculation is not applicable as the
Company does not have any expected cash flows from using these
properties at this stage.
14.
DEFERRED
REVENUE
The deferred
revenue balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Deferred revenue
– pre-sold toll milling
|
$
|
37,727
|
$
|
38,652
|
$
|
-
|
|
$
|
37,727
|
$
|
38,652
|
$
|
-
|
|
|
|
|
|
|
|
Deferred
revenue-by balance sheet presentation:
|
|
|
|
|
Current
|
$
|
4,567
|
$
|
4,936
|
$
|
-
|
Non-current
|
|
33,160
|
|
33,716
|
|
-
|
|
$
|
37,727
|
$
|
38,652
|
$
|
-
|
The deferred
revenue liability continuity summary is as follows:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Balance-January
1
|
|
|
$
|
38,652
|
$
|
-
|
Proceeds of APG
Arrangement, net
|
|
|
|
|
Upfront
proceeds
|
|
-
|
|
43,500
|
Less: toll
milling cash receipts from July 1, 2016 to January 31,
2017
|
-
|
|
(3,520)
|
Revenue earned
during the period
|
|
|
|
(4,239)
|
|
(4,443)
|
Accretion
|
|
|
|
3,314
|
|
3,115
|
Balance-December
31
|
|
|
$
|
37,727
|
$
|
38,652
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Arrangement
with Anglo Pacific Group PLC
In February 2017,
Denison closed an arrangement with APG under which Denison received
an upfront payment of $43,500,000 in exchange for its right to
receive future toll milling cash receipts from the MLJV under the
current toll milling agreement with the CLJV from July 1, 2016
onwards. The up-front payment was based upon an estimate of the
gross toll milling cash receipts to be received by Denison
discounted at a rate of 8.50%.
The APG
Arrangement represents a contractual obligation of Denison to pay
onward to APG any cash proceeds of future toll milling revenue
earned by the Company related to the processing of the specified
Cigar Lake ore through the McClean Lake mill. The Company has
reflected payments made to APG of $3,520,000, representing the
Cigar Lake toll milling cash receipts received by Denison in
respect of toll milling activity for the period from July 1, 2016
through January 31, 2017, as a reduction of the initial upfront
amount received and has reduced the initial deferred revenue
balance to $39,980,000 at the transaction date.
In connection
with the closing of the APG Arrangement, Denison reimbursed APG for
USD$100,000 in due diligence costs and granted 1,673,077 share
purchase warrants to APG in satisfaction of a $435,000 arrangement
fee payable. The fair value of the warrants was determined using
the Black-Scholes option pricing model with the following
assumptions: risk-free rate of 0.91%, expected stock price
volatility of 51.47%, expected life of 3.0 years and expected
dividend yield of nil$. The warrants have an exercise price of
$1.27 per share and will be exercisable for a period of 3 years
from the date of closing of the financing (see note 20). In
addition, the terms of the BNS Letters of Credit Facility between
BNS and Denison were amended to reflect certain changes required to
facilitate an Intercreditor Agreement between APG, BNS and Denison
(see note 17).
The
Company’s share of toll milling revenue for January 2017,
prior to the closing of the transaction with APG, of $587,000 has
been recognized as toll milling revenue in the quarter ending March
31, 2017. Following the closing of the APG Arrangement, the Company
has recognized $4,443,000 in additional toll milling revenue in
2017 from the draw-down of deferred revenue based on Cigar Lake
toll milling production of 16,200,000 pounds U
3
O
8
(100%
basis).
In 2018, the
Company has recognized $4,239,000 of toll milling revenue from the
draw-down of deferred revenue, based on Cigar Lake toll milling
production of 18,018,000 pounds U
3
O
8
(100% basis). The
drawdown in 2018 includes a cumulative decrease in revenue for
prior periods of $332,000 resulting from changes in estimates to
the toll milling drawdown rate in the first quarter of
2018.
15.
POST-EMPLOYMENT
BENEFITS
The Company
provides post-employment benefits for former Canadian employees who
retired on immediate pension prior to 1997. The post-employment
benefits provided include life insurance and medical and dental
benefits as set out in the applicable group policies. No
post-employment benefits are provided to employees outside the
employee group referenced above. The post-employment benefit plan
is not funded.
The effective
date of the most recent actuarial valuation of the accrued benefit
obligation is October 1, 2016. The amount accrued is based on
estimates provided by the plan administrator which are based on
past experience, limits on coverage as set out in the applicable
group policies and assumptions about future cost trends. The
significant assumptions used in the most recent valuation are
listed below:
●
Discount rate of
3.10%;
●
Medical cost increase trend
rates of 7.00% per year in 2017, grading down by 0.125% per year to
4.625% in 2036 and using a rate at 4.00% per year thereafter;
and
●
Dental cost increase trend
rates of 4.00% per year for ten years, followed by 3.50% for the
next ten years and 3.00% per year thereafter.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The
post-employment benefits balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Accrued benefit
obligation
|
$
|
2,295
|
$
|
2,365
|
$
|
2,459
|
|
$
|
2,295
|
$
|
2,365
|
$
|
2,459
|
|
|
|
|
|
|
|
Post-employment
benefits-by balance sheet presentation:
|
|
|
|
|
Current
|
$
|
150
|
$
|
250
|
$
|
250
|
Non-current
|
|
2,145
|
|
2,115
|
|
2,209
|
|
$
|
2,295
|
$
|
2,365
|
$
|
2,459
|
The
post-employment benefits continuity summary is as
follows:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Balance-January
1
|
|
|
$
|
2,365
|
$
|
2,459
|
Accretion
|
|
|
|
72
|
|
74
|
Benefits
paid
|
|
|
|
(142)
|
|
(168)
|
Balance-December
31
|
|
|
$
|
2,295
|
$
|
2,365
|
16.
RECLAMATION
OBLIGATIONS
The reclamation
obligations balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Reclamation
obligations-by item:
|
|
|
|
|
|
|
Elliot
Lake
|
$
|
17,205
|
$
|
16,771
|
$
|
16,742
|
McClean and
Midwest Joint Ventures
|
|
12,837
|
|
11,716
|
|
11,384
|
Other
|
|
22
|
|
22
|
|
22
|
|
$
|
30,064
|
$
|
28,509
|
$
|
28,148
|
|
|
|
|
|
|
|
Reclamation
obligations-by balance sheet presentation:
|
|
|
|
|
Current
|
$
|
877
|
$
|
819
|
$
|
1,088
|
Non-current
|
|
29,187
|
|
27,690
|
|
27,060
|
|
$
|
30,064
|
$
|
28,509
|
$
|
28,148
|
The reclamation
obligations continuity summary is as follows:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Balance-January
1
|
|
|
$
|
28,509
|
$
|
28,148
|
Accretion
|
|
|
|
1,316
|
|
1,296
|
Expenditures
incurred
|
|
|
|
(755)
|
|
(981)
|
Liability
adjustments-income statement (note 23)
|
|
|
|
369
|
|
71
|
Liability
adjustments-balance sheet (note 13)
|
|
|
|
625
|
|
(25)
|
Balance-December
31
|
|
|
$
|
30,064
|
$
|
28,509
|
Site
Restoration: Elliot Lake
The Elliot Lake
uranium mine was closed in 1992 and capital works to decommission
this site were completed in 1997. The remaining provision is for
the estimated cost of monitoring the Tailings Management Areas at
the Denison and Stanrock sites and for treatment of water
discharged from these areas. The Company conducts its activities at
both sites pursuant to licenses issued by the Canadian Nuclear
Safety Commission (“CNSC”). The above accrual
represents the Company’s best estimate of the present value
of the total future reclamation cost, based on assumptions as to
what levels of treatment will be required in the future, discounted
at 4.53% (2017: 4.62%). As at December 31, 2018, the undiscounted
amount of estimated future reclamation costs, in current year
dollars, is $32,957,000 (December 31, 2017: $32,803,000). Revisions
to the reclamation liability for Elliot Lake are recognized in the
income statement as there is no net reclamation asset associated
with this site.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Spending on
restoration activities at the Elliot Lake site is funded from
monies in the Elliot Lake Reclamation Trust fund (see note
12).
Site
Restoration: McClean Lake Joint Venture and Midwest Joint
Venture
The McClean Lake
and Midwest operations are subject to environmental regulations as
set out by the Saskatchewan government and the CNSC. Cost estimates
of the estimated future decommissioning and reclamation activities
are prepared periodically and filed with the applicable regulatory
authorities for approval. The above accrual represents the
Company’s best estimate of the present value of the future
reclamation cost contemplated in these cost estimates discounted at
4.53% (2017: 4.62%). As at December 31, 2018, the undiscounted
amount of estimated future reclamation costs, in current year
dollars, is $23,275,000 (December 31, 2017: $22,810,000). The
majority of the reclamation costs are expected to be incurred
between 2036 and 2054. Revisions to the reclamation liabilities for
McClean Lake and Midwest are recognized on the balance sheet as
adjustments to the net reclamation assets associated with the sites
.
Under the Mineral
Industry Environmental Protection Regulations (1996), the Company
is required to provide its pro-rata share of financial assurances
to the province of Saskatchewan based on periodic filings of
estimated reclamation plans and the associated undiscounted future
reclamation costs included therein. Accordingly, as at December 31,
2018, the Company has in place irrevocable standby letters of
credit, from a chartered bank, in favour of the Saskatchewan
Ministry of the Environment, totalling $24,135,000 which relate to
the most recently filed reclamation plan dated March
2016.
17.
OTHER
LIABILITIES
The other
liabilities balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Debt
obligations
|
$
|
-
|
$
|
-
|
$
|
370
|
Unamortized fair
value of toll milling contracts
|
|
-
|
|
-
|
|
905
|
Flow-through
share premium obligation (note 19)
|
|
1,337
|
|
3,835
|
|
2,420
|
|
$
|
1,337
|
$
|
3,835
|
$
|
3,695
|
|
|
|
|
|
|
|
Other
liabilities-by balance sheet presentation:
|
|
|
|
|
|
|
Current
|
$
|
1,337
|
$
|
3,835
|
$
|
2,850
|
Non-current
|
|
-
|
|
-
|
|
845
|
|
$
|
1,337
|
$
|
3,835
|
$
|
3,695
|
The debt
obligations continuity summary is as follows:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Balance-January
1
|
|
|
$
|
-
|
$
|
370
|
Repayments
|
|
|
|
-
|
|
(370)
|
Balance-December
31
|
|
|
$
|
-
|
$
|
-
|
Unamortized fair
values of toll milling contracts are amortized to revenue on a
pro-rata basis over the estimated volume of the applicable
contract. In February 2017, in conjunction with the APG
Arrangement, the Company extinguished the remaining unamortized
fair value of its toll milling contract liabilities and recognized
a gain of $899,000 as a component of “Other income
(expense)” – see note 23.
Letters of
Credit Facility
In 2018, the
Company had a facility in place with BNS for credit of up to
$24,000,000 with a one year term and a maturity date of January 31,
2019 (the “2018 facility”). Use of the 2018 facility is
restricted to non-financial letters of credit in support of
reclamation obligations.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The 2018 facility
contains a covenant to maintain a level of tangible net worth
greater than or equal to the sum of $131,000,000 and a pledge of
$9,000,000 in restricted cash and investments as collateral for the
facility (see note 12). During 2018, the maintenance level for the
tangible net worth covenant was amended from USD$150,000,000 to
accommodate the Company’s change in presentation currency
(see note 2). As additional security for the 2018 facility, DMC has
provided an unlimited full recourse guarantee and a pledge of all
of the shares of DMI. DMI has provided a first-priority security
interest in all present and future personal property and an
assignment of its rights and interests under all material
agreements relative to the McClean Lake and Midwest projects. The
2018 facility is subject to letter of credit fees of 2.40% (0.40%
on the first $9,000,000) and standby fees of 0.75%.
At December 31,
2018, the Company was in compliance with its 2018 facility
covenants and $24,000,000 of the 2018 facility was being utilized
as collateral for certain letters of credit (December 31, 2017 -
$24,000,000). During 2018 and 2017, the Company incurred letter of
credit and standby fees of $397,000 and $411,000,
respectively.
In January 2019,
the Company has entered into an agreement with BNS to amend the
terms of the 2018 facility to extend the maturity date to January
31, 2020 (see note 29).
18.
INCOME
TAXES
The income tax
recovery balance from continuing operations consists
of:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Deferred income
tax:
|
|
|
|
|
|
|
Origination of
temporary differences
|
|
|
$
|
4,520
|
$
|
1,930
|
Tax
benefit-previously unrecognized tax assets
|
|
|
|
3,852
|
|
3,307
|
Prior year over
(under) provision
|
|
|
|
(78)
|
|
(71)
|
|
|
|
|
8,294
|
|
5,166
|
Income tax
recovery
|
|
|
$
|
8,294
|
$
|
5,166
|
The Company
operates in multiple industries and jurisdictions, and the related
income is subject to varying rates of taxation. The combined
Canadian tax rate reflects the federal and provincial tax rates in
effect in Ontario, Canada for each applicable year. A
reconciliation of the combined Canadian tax rate to the
Company’s effective rate of income tax is as
follows:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Loss before taxes
from continuing operations
|
|
|
$
|
(38,371)
|
$
|
(24,620)
|
Combined Canadian
tax rate
|
|
|
|
26.50%
|
|
26.50%
|
Income tax
recovery at combined rate
|
|
|
|
10,168
|
|
6,524
|
|
|
|
|
|
|
|
Difference in tax
rates
|
|
|
|
7,573
|
|
2,096
|
Non-deductible
amounts
|
|
|
|
(5,996)
|
|
(2,237)
|
Non-taxable
amounts
|
|
|
|
1,439
|
|
1,795
|
Previously
unrecognized deferred tax assets
(1)
|
|
|
|
3,852
|
|
3,307
|
Renunciation of
tax attributes-flow through shares
|
|
|
|
(1,589)
|
|
(2,827)
|
Change in
deferred tax assets not recognized
|
|
|
|
(7,488)
|
|
(3,743)
|
Prior year over
(under) provision
|
|
|
|
(78)
|
|
(71)
|
Other
|
|
|
|
413
|
|
322
|
Income tax
recovery
|
|
|
$
|
8,294
|
$
|
5,166
|
(1)
The Company has recognized
certain previously unrecognized Canadian tax assets in 2018 and
2017 as a result of the renunciation of certain tax benefits to
subscribers pursuant to its March 2017 $14,499,790 and May 2016
$12,405,000 flow-through share offerings.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The deferred
income tax assets (liabilities) balance reported on the balance
sheet is comprised of the temporary differences as presented
below:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Deferred income
tax assets:
|
|
|
|
|
|
|
Property, plant
and equipment, net
|
$
|
381
|
$
|
977
|
$
|
889
|
Post-employment
benefits
|
|
600
|
|
617
|
|
645
|
Reclamation
obligations
|
|
8,798
|
|
8,296
|
|
8,217
|
Other
liabilities
|
|
-
|
|
-
|
|
237
|
Tax loss carry
forwards
|
|
13,346
|
|
11,718
|
|
11,790
|
Other
|
|
8,164
|
|
7,522
|
|
6,081
|
Deferred income
tax assets-gross
|
|
31,289
|
|
29,130
|
|
27,859
|
Set-off against
deferred income tax liabilities
|
|
(31,289)
|
|
(29,130)
|
|
(27,859)
|
Deferred income
tax assets-per balance sheet
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
Deferred income
tax liabilities:
|
|
|
|
|
|
|
Inventory
|
$
|
(742)
|
$
|
(741)
|
$
|
(744)
|
Investments
|
|
29
|
|
(651)
|
|
(368)
|
Investments in
associates
|
|
(23)
|
|
14
|
|
(80)
|
Property, plant
and equipment, net
|
|
(42,313)
|
|
(44,042)
|
|
(45,581)
|
Other
|
|
(1,203)
|
|
(1,132)
|
|
(1,254)
|
Deferred income
tax liabilities-gross
|
|
(44,252)
|
|
(46,552)
|
|
(48,027)
|
Set-off of
deferred income tax assets
|
|
31,289
|
|
29,130
|
|
27,859
|
Deferred income
tax liabilities-per balance sheet
|
$
|
(12,963)
|
$
|
(17,422)
|
$
|
(20,168)
|
The deferred
income tax liability continuity summary is as follows:
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Balance-January
1
|
|
|
$
|
(17,422)
|
$
|
(20,168)
|
Recognized in
income (loss)
|
|
|
|
8,294
|
|
5,166
|
Recognized in
other liabilities (flow-through shares)
|
|
|
|
(3,835)
|
|
(2,420)
|
Balance-December
31
|
|
|
$
|
(12,963)
|
$
|
(17,422)
|
Management
believes that it is not probable that sufficient taxable profit
will be available in future years to allow the benefit of the
following deferred tax assets to be utilized:
|
|
At
December 31
|
|
At
December 31
|
|
At
January 1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Deferred income
tax assets not recognized
|
|
|
|
|
|
|
Property, plant
and equipment
|
$
|
10,439
|
$
|
8,472
|
$
|
6,678
|
Tax losses
– capital
|
|
66,527
|
|
66,763
|
|
36,981
|
Tax losses
– operating
|
|
29,220
|
|
27,530
|
|
26,628
|
Tax
credits
|
|
1,126
|
|
1,125
|
|
1,154
|
Other deductible
temporary differences
|
|
2,220
|
|
826
|
|
783
|
Deferred income
tax assets not recognized
|
$
|
109,532
|
$
|
104,716
|
$
|
72,224
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
A geographic
split of the Company’s tax losses and tax credits not
recognized and the associated expiry dates of those losses and
credits is as follows:
|
|
Expiry
|
|
At
December 31
|
|
At
December 31
|
(in
thousands)
|
|
Date
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Tax losses -
gross
|
|
|
|
|
|
|
Canada
|
|
2025-2038
|
$
|
158,437
|
$
|
147,046
|
Tax losses -
gross
|
|
|
|
158,437
|
|
147,046
|
Tax benefit at
tax rate of 25% - 27%
|
|
|
|
42,566
|
|
39,248
|
Set-off against
deferred tax liabilities
|
|
|
|
(13,346)
|
|
(11,718)
|
Total tax loss
assets not recognized
|
|
|
$
|
29,220
|
$
|
27,530
|
|
|
|
|
|
|
|
Tax
credits
|
|
|
|
|
|
|
Canada
|
|
2025-2035
|
|
1,126
|
|
1,125
|
Total tax credit
assets not recognized
|
|
|
$
|
1,126
|
$
|
1,125
|
19.
SHARE
CAPITAL
Denison is
authorized to issue an unlimited number of common shares without
par value. A continuity summary of the issued and outstanding
common shares and the associated dollar amounts is presented
below:
|
Number
of
|
|
|
|
Common
|
|
|
(in thousands
except share amounts)
|
Shares
|
|
|
|
|
|
|
Balance-January
1, 2017
|
540,722,365
|
$
|
1,295,235
|
Issued for
cash:
|
|
|
|
Share issue
proceeds
|
18,337,000
|
|
20,000
|
Share issue
costs
|
-
|
|
(1,129)
|
Share option
exercises
|
128,873
|
|
90
|
Share option
exercises-fair value adjustment
|
-
|
|
112
|
Flow-through
share premium liability (note 17)
|
-
|
|
(3,835)
|
Share
cancellations
|
(5,029)
|
|
-
|
|
18,460,844
|
|
15,238
|
Balance-December
31, 2017
|
559,183,209
|
$
|
1,310,473
|
|
|
|
|
Issued for
cash:
|
|
|
|
Share issue
proceeds
|
4,950,495
|
|
5,000
|
Share issue
costs
|
-
|
|
(451)
|
Acquisition-Wheeler River
additional interest (note 13)
|
24,615,000
|
|
17,231
|
Acquisition-Wheeler River
additional interest–transaction costs (note 13)
|
426,382
|
|
298
|
Flow-through
share premium liability (note 17)
|
-
|
|
(1,337)
|
|
29,991,877
|
|
20,741
|
Balance-December
31, 2018
|
589,175,086
|
$
|
1,331,214
|
Share
Issues
In March 2017,
Denison completed a private placement of 18,337,000 shares of
Denison for gross proceeds of $20,000,290. The aggregate share
offering was comprised of the following three elements: (1) a
“Common Share” offering which consisted of 5,790,000
common shares of Denison at a price of $0.95 per share for gross
proceeds of $5,500,500; (2) a “Tranche A Flow-Through”
offering which consisted of 8,482,000 flow-through shares at a
price of $1.12 per share for gross proceeds of $9,499,840; and (3)
a “Tranche B Flow-Through” offering which consisted of
4,065,000 flow-through shares at a price of $1.23 per share for
gross proceeds of $4,999,950. The income tax benefits of the
flow-through elements of this issue were renounced to subscribers
with an effective date of December 31, 2017. The related
flow-through share premium liabilities are included as a component
of other liabilities on the balance sheet at December 31, 2017 and
were extinguished during 2018 (see note 17).
In November 2018,
Denison completed a private placement of 4,950,495 flow-through
common shares at a price of $1.01 per share for gross proceeds of
$5,000,000. The income tax benefits of this issue were renounced to
subscribers with an effective date of December 31, 2018. The
related flow-through share premium liabilities are included as a
component of other liabilities on the balance sheet at December 31,
2018 and will be extinguished during 2019 when the tax benefit is
renounced to the shareholders (see note 17).
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Share
Cancellations
In January 2017,
5,029 shares were cancelled in connection with the January 2014
acquisition of the minority interest of Rockgate Capital Corp
(“RCC”). RCC shareholders were entitled to exchange
their RCC shares for shares of Denison in accordance with the share
exchange ratio established for the acquisition. In January 2017,
this right expired and the un-exchanged shares for which
shareholders had not elected to exercise their exchange rights were
subsequently cancelled.
Flow-Through
Share Issues
The Company
finances a portion of its exploration programs through the use of
flow-through share issuances. Canadian income tax deductions
relating to these expenditures are claimable by the investors and
not by the Company.
As at December
31, 2018, the Company estimates that it has satisfied its
obligation to spend $14,499,790 on eligible exploration
expenditures as a result of the issuance of Tranche A and Tranche B
flow-through shares in March 2017. The Company renounced the income
tax benefits of this issue in February 2018, with an effective date
of renunciation to its subscribers of December 31, 2017. In
conjunction with the renunciation, the flow-through share premium
liability has been reversed and recognized as part of the deferred
tax recovery in 2018 (see note 18).
As at December
31, 2018, the Company estimates that it incurred $253,000 of
expenditures towards its obligation to spend $5,000,000 on eligible
exploration expenditures as a result of the issuance of
flow-through shares in November 2018.
20.
SHARE
PURCHASE WARRANTS
A continuity
summary of the issued and outstanding share purchase warrants in
terms of common shares of the Company and the associated dollar
amounts is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
Number
of
|
|
|
|
|
|
|
Exercise
|
|
Common
|
|
Fair
|
|
|
|
|
Price
Per
|
|
Shares
|
|
Value
|
(in
thousands except share amounts)
|
|
Share
(CAD)
|
|
Issuable
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Balance-January
1, 2017
|
$
|
-
|
|
-
|
$
|
-
|
|
|
|
|
|
|
|
February 2017
warrants issued
|
|
1.27
|
|
1,673,077
|
|
435
|
Balance-December
31, 2017 and 2018
|
$
|
1.27
|
|
1,673,077
|
$
|
435
|
The February 2017
warrants were issued in conjunction with the APG Arrangement (see
note 14) and expire on February 14, 2020.
21.
SHARE-BASED
COMPENSATION
In May 2018,
shareholders ratified and confirmed the Company’s new share
unit plan and the grant of share units thereunder (further
described below). As a result, the Company’s share based
compensation arrangements now include restricted share units
(“RSUs”) and performance share units
(“PSUs”) in addition to stock options.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
A summary of
share based compensation expense recognized in the statement of
income (loss) is as follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Share based
compensation expense for:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
|
$
|
(1,051)
|
$
|
(1,299)
|
RSUs
|
|
|
|
|
|
(337)
|
|
-
|
PSUs
|
|
|
|
|
|
(447)
|
|
-
|
Share
based compensation expense
|
|
|
|
|
$
|
(1,835)
|
$
|
(1,299)
|
At December 31,
2018, an additional $1,615,000 in share-based compensation expense
remains to be recognized up until April 2023.
Stock
Options
The
Company’s stock-based compensation plan (the
“Plan”) provides for the granting of stock options up
to 10% of the issued and outstanding common shares at the time of
grant, subject to a maximum of 39,670,000 common shares. As at
December 31, 2018, an aggregate of 21,274,893 options have been
granted (less cancellations) since the Plan’s inception in
1997.
Under the Plan,
all stock options are granted at the discretion of the
Company’s board of directors, including any vesting
provisions if applicable. The term of any stock option granted may
not exceed ten years and the exercise price may not be lower than
the closing price of the Company’s shares on the last trading
day immediately preceding the date of grant. In general, stock
options granted under the Plan have five year terms and vesting
periods up to 24 months.
A continuity
summary of the stock options of the Company granted under the Plan
for 2018 is presented below:
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
Number
of
|
|
Price
per
|
|
|
|
|
|
|
|
Common
|
|
Share
|
|
|
|
|
|
|
|
Shares
|
|
(CAD)
|
|
|
|
|
|
|
|
|
|
|
Stock options
outstanding – January 1, 2018
|
|
|
|
11,799,650
|
$
|
0.94
|
Granted
|
|
|
|
|
|
|
3,427,543
|
|
0.61
|
Expiries
|
|
|
|
|
|
|
(816,000)
|
|
1.30
|
Forfeitures
|
|
|
|
|
|
|
(546,000)
|
|
0.90
|
Stock options
outstanding – December 31, 2018
|
|
|
|
13,865,193
|
$
|
0.83
|
Stock options
exercisable – December 31, 2018
|
|
|
|
7,439,950
|
$
|
0.93
|
A summary of the
Company’s stock options outstanding at December 31, 2018 is
presented below:
|
|
|
|
|
Weighted
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Remaining
|
|
|
|
Exercise
|
Range of
Exercise
|
|
|
|
|
Contractual
|
|
Number
of
|
|
Price
per
|
Prices per
Share
|
|
|
|
|
Life
|
|
Common
|
|
Share
|
(CAD)
|
|
|
|
|
(Years)
|
|
Shares
|
|
(CAD)
|
|
|
|
|
|
|
|
|
|
|
Stock options
outstanding
|
|
|
|
|
|
|
$ 0.50 to $
0.99
|
|
3.28
|
|
11,797,193
|
$
|
0.74
|
$ 1.00 to $
1.19
|
|
|
|
|
1.19
|
|
1,202,000
|
|
1.09
|
$ 1.20 to $
1.39
|
|
|
|
|
0.35
|
|
11,000
|
|
1.33
|
$ 1.40 to $
1.99
|
|
|
|
|
0.18
|
|
855,000
|
|
1.82
|
Stock options
outstanding - December 31, 2018
|
|
2.91
|
|
13,865,193
|
$
|
0.83
|
Options
outstanding at December 31, 2018 expire between March 2019 and
September 2023.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The fair value of
each option granted is estimated on the date of grant using the
Black-Scholes option pricing model. The following table outlines
the range of assumptions used in the model to determine the fair
value of options granted:
|
|
2018
|
|
2017
|
|
|
|
|
|
Risk-free
interest rate
|
|
2.02% -
2.12%
|
|
0.11% -
1.44%
|
Expected stock
price volatility
|
|
43.17% -
48.39%
|
|
47.02% -
47.77%
|
Expected
life
|
|
3.4 to 3.5
years
|
|
3.4 to 3.5
years
|
Estimated
forfeiture rate
|
|
2.86% -
3.01%
|
|
2.94% -
4.14%
|
Expected dividend
yield
|
|
–
|
|
–
|
Fair value
per option granted
|
CAD$0.22 -
CAD$0.23
|
|
CAD$0.21 -
CAD$0.29
|
The fair values
of stock options with vesting provisions are amortized on a graded
method basis as stock-based compensation expense over the
applicable vesting periods.
Share
Units
The Company has a
share unit plan which provides for the granting of share unit
awards to directors, officers and employees of the Company. The
maximum number of share units that are issuable under the share
unit plan is 15,000,000. Each share unit represents the right to
receive one common share from treasury, subject to the satisfaction
of various time and / or performance conditions.
Under the plan,
all share unit grants, vesting periods and performance conditions
therein are approved by the Company’s board of directors.
Share unit grants are either in the form of RSUs or PSUs. RSUs
granted in 2018 vest ratably over a period of three years. PSUs
granted in 2018 vest ratably over a period of five years, based
upon the achievement of certain non-market performance vesting
conditions.
A continuity
summary of the RSUs of the Company granted under the share unit
plan is presented below:
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Number
of
|
|
Fair
Value
|
|
|
|
|
|
|
|
Common
|
|
Per
RSU
|
|
|
|
|
|
|
|
Shares
|
|
(CAD)
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding
– January 1, 2018
|
|
|
|
-
|
$
|
-
|
Granted
|
|
|
|
|
|
|
1,299,432
|
|
0.65
|
Forfeitures
|
|
|
|
(99,000)
|
|
0.65
|
RSUs outstanding
– December 31, 2018
|
|
|
|
1,200,432
|
$
|
0.65
|
RSUs vested
– December 31, 2018
|
|
|
|
-
|
$
|
-
|
A continuity
summary of the PSUs of the Company granted under the share unit
plan is presented below:
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Number
of
|
|
Fair
Value
|
|
|
|
|
|
|
|
Common
|
|
Per
PSU
|
|
|
|
|
|
|
|
Shares
|
|
(CAD)
|
|
|
|
|
|
|
|
|
|
|
PSUs outstanding
– January 1, 2018
|
|
|
|
-
|
$
|
-
|
Granted
|
|
|
|
|
|
|
2,200,000
|
|
0.65
|
PSUs outstanding
– December 31, 2018
|
|
|
|
2,200,000
|
$
|
0.65
|
PSUs vested
– December 31, 2018
|
|
|
|
-
|
$
|
-
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
22.
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated
other comprehensive income balance consists of:
|
|
At December
31
|
|
At December
31
|
|
At January
1
|
(in
thousands)
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
|
Cumulative
foreign currency translation
|
$
|
403
|
$
|
416
|
$
|
(446)
|
Unamortized
experience gain – post employment liability
|
|
|
|
|
Gross
|
|
983
|
|
983
|
|
983
|
Tax
effect
|
|
(259)
|
|
(259)
|
|
(259)
|
|
$
|
1,127
|
$
|
1,140
|
$
|
278
|
23.
SUPPLEMENTAL
FINANCIAL INFORMATION
The components of
operating expenses for continuing operations are as
follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Cost of goods and
services sold:
|
|
|
|
|
|
|
|
|
Operating
Overheads:
|
|
|
|
|
|
|
|
|
Mining, other
development expense
|
|
|
|
|
$
|
(3,695)
|
$
|
(1,043)
|
Milling,
conversion expense
|
|
|
|
|
|
(3,268)
|
|
(3,899)
|
Less
absorption:
|
|
|
|
|
|
|
|
|
-Mineral
properties
|
|
|
|
|
|
50
|
|
50
|
Cost of
services
|
|
|
|
|
|
(8,420)
|
|
(8,454)
|
Inventory-non
cash adjustments
|
|
|
|
|
|
(57)
|
|
(151)
|
Cost of goods and
services sold
|
|
|
|
|
|
(15,390)
|
|
(13,497)
|
Reclamation asset
amortization
|
|
|
|
|
|
(189)
|
|
(190)
|
Reclamation
liability adjustments (note 16)
|
|
|
|
|
|
(369)
|
|
(71)
|
Operating
expenses
|
|
|
|
|
$
|
(15,948)
|
$
|
(13,758)
|
The components of
other income (expense) for continuing operations are as
follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Gains (losses)
on:
|
|
|
|
|
|
|
|
|
Foreign
exchange
|
|
|
|
|
$
|
(1)
|
$
|
(853)
|
Disposal of
property, plant and equipment
|
|
|
|
|
|
(135)
|
|
27
|
Investment fair
value through profit (loss) (note 10)
|
|
|
|
(5,411)
|
|
2,417
|
Extinguishment of
toll milling contract liability (note 17)
|
|
|
|
-
|
|
899
|
Other
|
|
|
|
|
|
(318)
|
|
(495)
|
Other
income (expense)
|
|
|
|
|
$
|
(5,865)
|
$
|
1,995
|
The components of
finance income (expense) for continuing operations are as
follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
$
|
1,049
|
$
|
265
|
Interest
expense
|
|
|
|
|
|
-
|
|
(6)
|
Accretion
expense-deferred revenue (note 14)
|
|
|
|
|
|
(3,314)
|
|
(3,115)
|
Accretion
expense-reclamation obligations (note 16)
|
|
|
|
(1,316)
|
|
(1,296)
|
Accretion
expense-post-employment benefits (note 15)
|
|
|
|
(72)
|
|
(74)
|
Finance
expense, net
|
|
|
|
|
$
|
(3,653)
|
$
|
(4,226)
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
A summary of
depreciation expense recognized in the statement of income (loss)
is as follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Mining, other
development expense
|
|
|
|
|
$
|
(3)
|
$
|
(6)
|
Milling,
conversion expense
|
|
|
|
|
|
(3,264)
|
|
(3,895)
|
Cost of
services
|
|
|
|
|
|
(233)
|
|
(303)
|
Exploration and
evaluation
|
|
|
|
|
|
(124)
|
|
(123)
|
General and
administrative
|
|
|
|
|
|
(37)
|
|
(44)
|
Depreciation
expense-gross (note 13)
|
|
|
|
|
$
|
(3,661)
|
$
|
(4,371)
|
A summary of
employee benefits expense recognized in the statement of income
(loss) is as follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Salaries
and short-term employee benefits
|
|
|
|
|
$
|
(8,236)
|
$
|
(8,079)
|
Share-based
compensation (note 21)
|
|
|
|
|
|
(1,835)
|
|
(1,299)
|
Termination
benefits
|
|
|
|
|
|
(20)
|
|
(27)
|
Employee
benefits expense-gross
|
|
|
|
|
$
|
(10,091)
|
$
|
(9,405)
|
The change in
non-cash working capital items in the consolidated statements of
cash flows is as follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Change in
non-cash working capital items:
|
|
|
|
|
|
|
|
|
Trade and other
receivables
|
|
|
|
|
$
|
968
|
$
|
(1,586)
|
Inventories
|
|
|
|
|
|
(186)
|
|
(409)
|
Prepaid expenses
and other assets
|
|
|
|
|
|
(213)
|
|
(99)
|
Accounts payable
and accrued liabilities
|
|
|
|
|
|
(214)
|
|
639
|
Change
in non-cash working capital items
|
|
|
|
|
$
|
355
|
$
|
(1,455)
|
The supplemental
cash flow disclosure required for the consolidated statements of
cash flows is as follows:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Supplemental cash
flow disclosure:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
|
|
$
|
-
|
$
|
(6)
|
Income taxes
paid
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
24.
SEGMENTED
INFORMATION
Business
Segments
The Company
operates in three primary segments – the Mining segment, the
Environmental Services segment and the Corporate and Other segment.
The Mining segment has historically been further subdivided into
geographic regions, being Canada, Africa and Asia, and includes
activities related to exploration, evaluation and development,
mining, milling (including toll milling) and the sale of mineral
concentrates. The Africa and Asia Mining segments were disposed of
in 2016 and 2015 respectively. The Environmental Services segment
includes the results of the Company’s environmental services
business, DES. The Corporate and Other segment includes management
fee income earned from UPC and general corporate expenses not
allocated to the other segments. Management fee income has been
included with general corporate expenses due to the shared
infrastructure between the two activities.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
For the year
ended December 31, 2018, reportable segment results were as
follows:
(in
thousands)
|
|
|
Canada
Mining
|
DES
|
Corporate
and
Other
|
Total
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
Revenues
|
|
|
4,239
|
9,298
|
2,013
|
15,550
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating
expenses
|
|
|
(7,528)
|
(8,211)
|
(209)
|
(15,948)
|
Exploration and
evaluation
|
|
|
(15,457)
|
-
|
-
|
(15,457)
|
General and
administrative
|
|
|
(17)
|
-
|
(7,172)
|
(7,189)
|
Impairment
expense
|
|
(6,086)
|
-
|
-
|
(6,086)
|
|
|
|
(29,088)
|
(8,211)
|
(7,381)
|
(44,680)
|
Segment income
(loss)
|
|
|
(24,849)
|
1,087
|
(5,368)
|
(29,130)
|
|
|
|
|
|
|
|
Revenues – supplemental:
|
|
|
|
|
|
|
Environmental
services
|
|
|
-
|
9,298
|
-
|
9,298
|
Management
fees
|
|
|
-
|
-
|
2,013
|
2,013
|
Toll milling
services–deferred revenue
|
|
|
4,239
|
-
|
-
|
4,239
|
|
|
|
4,239
|
9,298
|
2,013
|
15,550
|
|
|
|
|
|
|
|
Capital additions:
|
|
|
|
|
|
|
Property, plant
and equipment
|
|
|
19,001
|
95
|
-
|
19,096
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
Plant and
equipment
|
|
|
|
|
|
|
Cost
|
|
|
98,737
|
4,399
|
294
|
103,430
|
Accumulated
depreciation
|
|
|
(20,982)
|
(2,927)
|
(177)
|
(24,086)
|
Mineral
properties
|
|
|
178,947
|
-
|
-
|
178,947
|
|
|
|
256,702
|
1,472
|
117
|
258,291
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
For
the year ended December 31, 2017, reportable segment results were
as follows:
(in
thousands)
|
|
|
Canada
Mining
|
DES
|
Corporate
and
Other
|
Total
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
Revenues
|
|
|
5,029
|
9,232
|
1,806
|
16,067
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating
expenses
|
|
|
(5,304)
|
(8,230)
|
(224)
|
(13,758)
|
Exploration and
evaluation
|
|
|
(16,643)
|
-
|
-
|
(16,643)
|
General and
administrative
|
|
|
(16)
|
-
|
(7,664)
|
(7,680)
|
Impairment
reversal
|
|
331
|
-
|
-
|
331
|
|
|
|
(21,632)
|
(8,230)
|
(7,888)
|
(37,750)
|
Segment income
(loss)
|
|
|
(16,603)
|
1,002
|
(6,082)
|
(21,683)
|
|
|
|
|
|
|
|
Revenues – supplemental:
|
|
|
|
|
|
|
Environmental
services
|
|
|
-
|
9,232
|
-
|
9,232
|
Management
fees
|
|
|
-
|
-
|
1,806
|
1,806
|
Toll milling
services
|
|
|
587
|
-
|
-
|
587
|
Toll milling
services–deferred revenue
|
|
|
4,442
|
-
|
-
|
4,442
|
|
|
|
5,029
|
9,232
|
1,806
|
16,067
|
|
|
|
|
|
|
|
Capital additions:
|
|
|
|
|
|
|
Property, plant
and equipment
|
|
|
1,035
|
51
|
-
|
1,086
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
Plant and
equipment
|
|
|
|
|
|
|
Cost
|
|
|
98,558
|
4,334
|
294
|
103,186
|
Accumulated
depreciation
|
|
|
(17,652)
|
(2,724)
|
(140)
|
(20,516)
|
Mineral
properties
|
|
|
166,332
|
-
|
-
|
166,332
|
|
|
|
247,238
|
1,610
|
154
|
249,002
|
As at January 1,
2017, reportable segment amounts for the Company’s long-lived
assets were as follows:
(in
thousands)
|
|
|
Canada
Mining
|
DES
|
Corporate
and
Other
|
Total
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
Plant and
equipment
|
|
|
|
|
|
|
Cost
|
|
|
99,278
|
4,378
|
294
|
103,950
|
Accumulated
depreciation
|
|
|
(14,339)
|
(2,495)
|
(96)
|
(16,930)
|
Mineral
properties
|
|
|
165,372
|
-
|
-
|
165,372
|
|
|
|
250,311
|
1,883
|
198
|
252,392
|
Revenue
Concentration
The
Company’s business from continuing operations is such that,
at any given time, it sells its environmental and other services to
a relatively small number of customers. During 2018, one customer
from the corporate and other segment, three customers from the DES
segment and one customer from the mining segment accounted for
approximately 97% of total revenues consisting of 13%, 57% and 27%
respectively. During 2017, one customer from the corporate and
other segment, three customers from the DES segment and one
customer from the mining segment accounted for approximately 95% of
total revenues consisting of 11%, 53% and 31%
respectively.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Revenue
Commitments
Denison’s
revenue portfolio consists of short and long-term sales
commitments. The following table summarizes the expected future
revenue, by segment, based on the customer contract commitments and
information that exists as at December 31, 2018:
(in
thousands)
|
2019
|
2020
|
2021
|
2022
|
2023
|
There-
after
|
Total
|
|
|
|
|
|
|
|
|
Revenues – by Segment:
|
|
|
|
|
|
|
|
Canada
Mining
|
|
|
|
|
|
|
|
Toll milling
services – APG Arrangement
|
4,567
|
4,567
|
4,567
|
4,567
|
4,567
|
46,724
|
69,559
|
D.E.S
|
|
|
|
|
|
|
|
Environmental
services
|
4,761
|
874
|
-
|
-
|
-
|
-
|
5,635
|
Corporate and
Other
|
|
|
|
|
|
|
|
Management
fees
|
489
|
-
|
-
|
-
|
-
|
-
|
489
|
Total
Revenue Commitments
|
9,817
|
5,441
|
4,567
|
4,567
|
4,567
|
46,724
|
75,683
|
With the
exception of the toll milling services related to the APG
Arrangement, the amounts in the table above represent the estimated
consideration that Denison will be entitled to receive when it
satisfies the remaining performance obligations in its customer
contracts. Various assumptions, consistent with past experience,
have been made where the quantity of the performance obligation may
vary.
The APG
Arrangement toll milling revenue commitment represents the
estimated non-cash amount of the revenue component of the
Company’s deferred revenue balance at December 31, 2018 (see
note 14). The difference between the total revenue commitment
amount above and the liability on the balance sheet represents the
cumulative remaining impact of discounting to the end of the APG
Arrangement contract.
25.
RELATED
PARTY TRANSACTIONS
Uranium
Participation Corporation
The Company is a
party to a management services agreement with UPC that was renewed
in 2016 with an effective start date of April 1, 2016 and a term of
three years. Under the current agreement, Denison receives the
following fees from UPC: a) a base fee of $400,000 per annum,
payable in equal quarterly installments; b) a variable fee equal to
(i) 0.3% per annum of UPC’s total assets in excess of $100
million and up to and including $500 million, and (ii) 0.2% per
annum of UPC’s total assets in excess of $500 million; c) a
fee, at the discretion of the Board, for on-going monitoring or
work associated with a transaction or arrangement (other than a
financing, or the acquisition of or sale of U
3
O
8
or UF
6
); and d) a
commission of 1.0% of the gross value of any purchases or sales of
U
3
O
8
or UF
6
or gross interest
fees payable to UPC in connection with any uranium loan
arrangements.
The following
transactions were incurred with UPC for the periods
noted:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Management
fees:
|
|
|
|
|
|
|
|
|
Base and variable
fees
|
|
|
|
|
$
|
1,739
|
$
|
1,438
|
Discretionary
fees
|
|
|
|
|
|
50
|
|
-
|
Commission
fees
|
|
|
|
|
|
224
|
|
368
|
|
|
|
|
|
$
|
2,013
|
$
|
1,806
|
At December 31,
2018, accounts receivable includes $303,000 (December 31, 2017:
$481,000) due from UPC with respect to the fees and transactions
indicated above.
Korea
Electric Power Corporation (“KEPCO”) and Korea Hydro
& Nuclear Power (“KHNP”)
In connection
with KEPCO’s investment in Denison in June 2009, KEPCO and
Denison were parties to a strategic relationship agreement. In
December 2016, Denison was notified that KEPCO’s indirect
ownership of Denison’s shares had been transferred from an
affiliate of KEPCO to an affiliate of KEPCO’s wholly-owned
subsidiary, KHNP. In September 2017, Denison and KHNP’s
affiliate entered into an amended and restated strategic
relationship agreement, in large part providing KHNP’s
affiliate with the same rights as those previously given to KEPCO
under the prior agreement, including entitling KHNP’s
affiliate to: (a) subscribe for additional common shares in
Denison’s future public equity offerings; (b) a right of
first opportunity if Denison intends to sell any of its substantial
assets; (c) a right to participate in certain purchases of
substantial assets which Denison proposes to acquire; and (d) a
right to nominate one director to Denison’s board so long as
its share interest in Denison is above 5.0%.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
As at December
31, 2018, KHNP, through its subsidiaries, holds 58,284,000 shares
of Denison representing a share interest of approximately 9.89%.
KHNP Canada Energy Ltd (“KHNP Canada”), a subsidiary of
KHNP, is the holder of the majority of Denison’s
shares.
KHNP Canada is
also the majority member of the Korea Waterbury Uranium Limited
Partnership (“KWULP”). KWULP is a consortium of
investors that holds the non-Denison owned interests in Waterbury
Lake Uranium Corporation (“WLUC”) and the WLULP,
entities whose key asset is the Waterbury Lake property. At
December 31, 2018, WLUC is owned by Denison (60%) and KWULP (40%)
while the WLULP is owned by Denison (65.92% - limited partner),
KWULP (34.06% - limited partner) and WLUC (0.02% - general
partner). When a spending program is approved, each participant is
required to fund these entities based upon its respective ownership
interest or be diluted accordingly. Spending program approval
requires 75% of the limited partners’ voting
interest.
In January 2014,
Denison agreed to allow KWULP to defer a decision regarding its
funding obligation to WLUC and WLULP until September 30, 2015 and
to not be immediately diluted as per the dilution provisions in the
relevant agreements (“Dilution Agreement”). Instead,
under the Dilution Agreement, dilution would be delayed until
September 30, 2015 and then applied in each subsequent period, if
applicable, in accordance with the original agreements. In
exchange, Denison received authorization to approve spending
programs on the property, up to an aggregate $10,000,000, until
September 30, 2016 without obtaining approval from 75% of the
voting interest. Under subsequent amendments, Denison and KWULP
have agreed to extend Denison’s authorization under the
Dilution Agreement to approve program spending up to an aggregate
$15,000,000 until December 31, 2019.
In 2017, Denison
funded 100% of the approved fiscal 2017 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 63.01% to
64.22%, in two steps, which has been accounted for using effective
dates of May 31, 2017 and August 31, 2017. The increased ownership
interest resulted in Denison recording its increased pro-rata share
of the net assets of Waterbury Lake, the majority of which relates
to an addition to mineral property assets of $779,000.
In 2018, Denison
funded 100% of the approved fiscal 2018 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 64.22% to
65.92%, in two steps, which has been accounted for using effective
dates of May 31, 2018 and October 31, 2018. The increased ownership
interest resulted in Denison recording its increased pro-rata share
of the net assets of Waterbury Lake, the majority of which relates
to an addition to mineral property assets of
$1,141,000.
Other
On December 12,
2018, the Company lent $250,000 to GoviEx pursuant to a credit
agreement between the parties (see note 8). The loan is unsecured,
bears interest at 7.5% per annum and is payable on demand at any
time that is 60 days after the lending date.
During 2018, the
Company incurred investor relations, administrative service fees
and other expenses of $209,000 (2017: $186,000) with Namdo
Management Services Ltd, which shares a common director with
Denison. These services were incurred in the normal course of
operating a public company. At December 31, 2018, an amount of $nil
(December 31, 2017: $nil) was due to this company.
During 2018, the
Company incurred office and other expenses of $81,000 (2017:
$60,000) with Lundin S.A, a company which provided office,
administration and other services to the former executive chairman,
other directors and management of Denison. The agreement for the
office and administration services was terminated effective
September 30, 2018. At December 31, 2018, an amount of $nil
(December 31, 2017: $nil) was due to this company.
Compensation
of Key Management Personnel
Key management
personnel are those persons having authority and responsibility for
planning, directing and controlling the activities of the Company,
directly or indirectly. Key management personnel includes the
Company’s executive officers, vice-presidents and members of
its Board of Directors.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The following
compensation was awarded to key management personnel:
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Salaries and
short-term employee benefits
|
|
|
|
|
$
|
(1,759)
|
$
|
(1,670)
|
Share-based
compensation
|
|
|
|
|
|
(1,522)
|
|
(1,104)
|
Key
management personnel compensation
|
|
|
|
|
$
|
(3,281)
|
$
|
(2,774)
|
26.
CAPITAL
MANAGEMENT AND FINANCIAL RISK
Capital
Management
The
Company’s capital includes cash, cash equivalents,
investments in debt instruments and debt obligations. The
Company’s primary objective with respect to its capital
management is to ensure that it has sufficient capital to maintain
its ongoing operations, to provide returns for shareholders and
benefits for other stakeholders and to pursue growth
opportunities.
Planning, annual
budgeting and controls over major investment decisions are the
primary tools used to manage the Company’s capital. The
Company’s cash is managed centrally and disbursed to the
various regions and / or business units via a system of cash call
requests which are reviewed by the key decision makers. Under the
Company’s delegation of authority guidelines, significant
debt obligations require the approval of both the CEO and the CFO
before they are entered into.
The Company
manages its capital by review of the following
measure:
|
|
|
|
At December
31
|
|
At December
31
|
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Net
cash:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
23,207
|
$
|
3,636
|
Investments in
debt instruments (note 10)
|
|
-
|
|
37,807
|
Debt
obligations-current (note 17)
|
|
|
|
-
|
|
-
|
Net
cash
|
|
|
$
|
23,207
|
$
|
41,443
|
Financial
Risk
The Company
examines the various financial risks to which it is exposed and
assesses the impact and likelihood of those risks. These risks may
include credit risk, liquidity risk, currency risk, interest rate
risk and price risk.
Credit risk is
the risk of loss due to a counterparty’s inability to meet
its obligations under a financial instrument that will result in a
financial loss to the Company. The Company believes that the
carrying amount of its cash and cash equivalents, trade and other
receivables, investments in debt instruments and restricted cash
and investments represents its maximum credit
exposure.
The maximum
exposure to credit risk at the reporting dates is as
follows:
|
|
|
|
At
December 31
|
|
At
December 31
|
(in
thousands)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
23,207
|
$
|
3,636
|
Trade and other
receivables
|
|
|
|
4,072
|
|
4,791
|
Investments in
debt instruments
|
|
|
|
-
|
|
37,807
|
Restricted cash
and investments
|
|
|
|
12,255
|
|
12,184
|
|
|
|
$
|
39,534
|
$
|
58,418
|
The Company
limits cash and cash equivalents, investment in debt instruments
and restricted cash and investment risk by dealing with credit
worthy financial institutions. The majority of the Company’s
normal course trade and other receivables balance relates to a
small number of customers whom have established credit worthiness
with the Company through past dealings.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Liquidity risk is
the risk that the Company will encounter difficulties in meeting
obligations associated with its financial liabilities as they
become due. The Company has in place a planning and budgeting
process to help determine the funds required to support the
Company’s normal operating requirements on an ongoing basis.
The Company ensures that there is sufficient committed capital to
meet its short-term business requirements, taking into account its
anticipated cash flows from operations, its holdings of cash and
cash equivalents, its financial covenants and its access to credit
and capital markets, if required.
The maturities of
the Company’s financial liabilities at December 31, 2018 are
as follows:
(in
thousands)
|
|
|
|
Within
1
Year
|
|
1
to 5
Years
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
|
$
|
5,554
|
$
|
-
|
|
|
|
$
|
5,554
|
$
|
-
|
Foreign exchange
risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in foreign
exchange rates. As at December 31, 2018, the Company predominantly
operates in Canada and incurs the majority of its operating and
capital costs in Canadian dollars. Some small foreign exchange risk
exists from assets and liabilities that are denominated in a
currency that is not the functional currency for the relevant
subsidiary company but the risk is minimal.
Currently, the
Company does not have any foreign exchange hedge programs in place
and manages its operational foreign exchange requirements through
spot purchases in the foreign exchange markets.
Interest rate
risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
interest rates. The Company is exposed to interest rate risk on its
liabilities through its outstanding borrowings, if any, and on its
assets through its investments in debt instruments. The Company
monitors its exposure to interest rates and has not entered into
any derivative contracts to manage this risk.
The Company is
exposed to equity price risk as a result of holding equity
investments in other exploration and mining companies. The Company
does not actively trade these investments. The sensitivity analysis
below has been determined based on the exposure to equity price
risk at December 31, 2018:
|
|
|
|
|
|
Change
in
|
|
|
|
|
|
|
net
income
|
(in
thousands)
|
|
|
|
|
|
(loss)
|
|
|
|
|
|
|
|
Equity price
risk
|
|
|
|
|
|
|
10% increase in
equity prices
|
|
|
|
|
$
|
368
|
10% decrease in
equity prices
|
|
|
|
|
|
(305)
|
|
|
|
|
|
|
|
Fair Value
of Financial Instruments
IFRS requires
disclosures about the inputs to fair value measurements, including
their classification within a hierarchy that prioritizes the inputs
to fair value measurement. The three levels of the fair value
hierarchy are:
●
Level 1 - Unadjusted quoted
prices in active markets for identical assets or
liabilities;
●
Level 2 - Inputs other than
quoted prices that are observable for the asset or liability either
directly or indirectly; and
●
Level 3 - Inputs that are not
based on observable market data.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
The fair value of
financial instruments which trade in active markets, such as share
and warrant equity instruments, is based on quoted market prices at
the balance sheet date. The quoted market price used to value
financial assets held by the Company is the current closing price.
Warrants that do not trade in active markets have been valued using
the Black-Scholes pricing model. Debt instruments have been valued
using the effective interest rate for the period that the Company
expects to hold the instrument and not the rate to
maturity.
Except as
otherwise disclosed, the fair values of cash and cash equivalents,
trade and other receivables, accounts payable and accrued
liabilities, restricted cash and cash equivalents and debt
obligations approximate their carrying values as a result of the
short-term nature of the instruments, the variable interest rate
associated with the instruments or the fixed interest rate of the
instruments being similar to market rates.
During 2018,
there were no transfers between levels 1, 2 and 3 and there were no
changes in valuation techniques.
The following
table illustrates the classification of the Company’s
financial assets within the fair value hierarchy as at December 31,
2018 and December 31, 2017:
|
|
Financial
|
|
Fair
|
|
December
31,
|
|
December
31,
|
|
|
Instrument
|
|
Value
|
|
2018
|
|
2017
|
(in
thousands)
|
|
Category
(1)
|
|
Hierarchy
|
|
Fair
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
Cash and
equivalents
|
|
Category
B
|
|
|
$
|
23,207
|
$
|
3,636
|
Trade and other
receivables
|
|
Category
B
|
|
|
|
4,072
|
|
4,791
|
Investments
|
|
|
|
|
|
|
|
|
Debt
instruments-GICs
|
|
Category
A
|
|
Level 2
|
|
-
|
|
37,807
|
Equity
instruments-shares
|
|
Category
A
|
|
Level 1
|
|
2,007
|
|
2,833
|
Equity
instruments-warrants
|
|
Category
A
|
|
Level 2
|
|
248
|
|
4,526
|
Restricted
cash and equivalents
|
|
|
|
|
|
|
|
|
Elliot Lake
reclamation trust fund
|
|
Category
B
|
|
|
|
3,120
|
|
3,049
|
Credit
facility pledged assets
|
|
Category
B
|
|
|
|
9,000
|
|
9,000
|
Reclamation
letter of credit collateral
|
|
Category
B
|
|
|
|
135
|
|
135
|
|
|
|
|
|
$
|
41,789
|
$
|
65,777
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
Account
payable and accrued liabilities
|
|
Category
C
|
|
|
|
5,554
|
|
5,756
|
Debt
obligations
|
|
Category
C
|
|
|
|
-
|
|
-
|
|
|
|
|
|
$
|
5,554
|
$
|
5,756
|
(1)
Financial instrument
designations are as follows: Category A=Financial assets and
liabilities at fair value through profit and loss; Category
B=Financial assets at amortized cost; and Category C=Financial
liabilities at amortized cost.
27.
COMMITMENTS
AND CONTINGENCIES
General
Legal Matters
The Company is
involved, from time to time, in various legal actions and claims in
the ordinary course of business. In the opinion of management, the
aggregate amount of any potential liability is not expected to have
a material adverse effect on the Company’s financial position
or results.
Specific
Legal Matters
Mongolia
Mining Division Sale – Arbitration Proceedings with Uranium
Industry a.s
In November 2015,
the Company sold all of its mining assets and operations located in
Mongolia to Uranium Industry a.s (“UI”) pursuant to an
amended and restated share purchase agreement (the “GSJV
Agreement”). The primary assets at that time were the
exploration licenses for the Hairhan, Haraat, Gurvan Saihan and
Ulzit projects. As consideration for the sale per the GSJV
Agreement, the Company received cash consideration of USD$1,250,000
prior to closing and the rights to receive additional contingent
consideration of up to USD$12,000,000.
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
On September 20,
2016, the Mineral Resources Authority of Mongolia
(“MRAM”) formally issued mining license certificates
for all four projects, triggering Denison’s right to receive
contingent consideration of USD$10,000,000 (collectively, the
“Mining License Receivable”). The original due date for
payment of the Mining License Receivable by UI was November 16,
2016.
Under an
extension agreement between UI and the Company, the payment due
date of the Mining License Receivable was extended from November
16, 2016 to July 16, 2017 (the “Extension Agreement”).
As consideration for the extension, UI agreed to pay interest on
the Mining License Receivable amount at a rate of 5% per year,
payable monthly up to July 16, 2017 and they also agreed to pay a
USD$100,000 instalment amount towards the balance of the Mining
License Receivable amount. The required payments were not
made.
On February 24,
2017, the Company served notice to UI that it was in default of its
obligations under the GSJV Agreement and the Extension Agreement
and that the Mining License Receivable and all interest payable
thereon are immediately due and payable.
On December 12,
2017, the Company filed a Request for Arbitration between the
Company and UI under the Arbitration Rules of the London Court of
International Arbitration in conjunction with the default of
UI’s obligations under the GSJV and Extension agreements. The
three person arbitration panel was appointed on February 28, 2018,
and UI submitted a formal response and counterclaim on October 19,
2018. As of the date hereof, arbitration proceedings are
continuing, including further submissions of documentation to the
arbitration panel by the Company and UI.
Performance
Bonds and Letters of Credit
In conjunction
with various contracts, reclamation and other performance
obligations, the Company may be required to issue performance bonds
and letters of credit as security to creditors to guarantee the
Company’s performance. Any potential payments which might
become due under these items would be related to the
Company’s non-performance under the applicable contract. As
at December 31, 2018, the Company had: (a) outstanding letters of
credit of $24,135,000 for reclamation obligations of which
$24,000,000 is collateralized by the Company’s 2018 credit
facility (see note 17) and the remainder is collateralized by cash
(see note 12); and (b) outstanding performance bonds of $790,000 as
security for various contractual performance
obligations.
Others
The Company has
committed to payments under various operating leases and other
commitments. Excluding spending amounts which may be required to
maintain the Company’s mineral properties in good standing,
the future minimum payments are as follows
:
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
$
|
(319)
|
2020
|
|
|
|
|
|
(291)
|
2021
|
|
|
|
|
|
(226)
|
2022
|
|
|
|
|
|
(126)
|
2023
|
|
|
|
|
|
(103)
|
Thereafter
|
|
|
|
|
|
(194)
|
|
|
|
|
|
$
|
(1,259)
|
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
28.
INTEREST
IN OTHER ENTITIES
The significant
subsidiaries, associates and joint operations of the Company at
December 31, 2018 are listed below.
|
|
|
|
December
|
Fiscal
|
|
|
|
Place
|
|
31,
2018
|
2018
|
|
|
|
Of
|
Entity
|
Ownership
|
Participating
|
Accounting
|
|
|
Business
|
Type
(1)
|
Interest
(2)
|
Interest
(3)
|
Method
(4)
|
Subsidiaries
|
|
|
|
|
|
|
Denison Mines
Inc.
|
|
Canada
|
|
100.00%
|
N/A
|
Consolidation
|
Denison AB
Holdings Corp.
|
|
Canada
|
|
100.00%
|
N/A
|
Consolidation
|
Denison
Waterbury Corp
|
|
Canada
|
|
100.00%
|
N/A
|
Consolidation
|
9373721
Canada Inc.
|
|
Canada
|
|
100.00%
|
N/A
|
Consolidation
|
Denison Mines
(Bermuda) I Ltd
|
|
Bermuda
|
|
100.00%
|
N/A
|
Consolidation
|
|
|
|
|
|
|
|
Associates
|
|
|
|
|
|
|
GoviEx
Uranium Inc.
|
|
Africa
|
|
16.21%
|
N/A
|
Equity
Method
|
|
|
|
|
|
|
|
Joint Operations
|
|
|
|
|
|
Waterbury Lake
Uranium Corp
|
|
Canada
|
JO-1
|
60.00%
|
100%
|
Voting
Share
|
Waterbury Lake
Uranium LP
|
|
Canada
|
JO-1
|
65.92%
|
100%
|
Voting
Share
|
McClean Joint
Venture Agreement
|
|
Canada
|
JO-2
|
22.50%
|
22.50%
|
Proportionate
Share
|
Midwest Joint
Venture Agreement
|
|
Canada
|
JO-2
|
25.17%
|
25.17%
|
Proportionate
Share
|
Wheeler
River
|
|
Canada
|
JO-2
|
90.00%
|
75.85%
|
Proportionate
Share
|
Mann
Lake
|
|
Canada
|
JO-2
|
30.00%
|
30.00%
|
Proportionate
Share
|
Wolly
|
|
Canada
|
JO-2
|
21.89%
|
Nil%
|
Proportionate
Share
|
|
|
|
|
|
|
|
(1)
Joint operations are further
subdivided into the following two entity types: JO-1=Joint
Operations having joint control as defined by IFRS 11; and
JO-2=Joint Operations not having joint control and beyond the scope
of IFRS 11;
(2)
Ownership Interest represents
Denison’s percentage ownership / voting interest in the
entity or contractual arrangement;
(3)
Participating interest
represents Denison’s percentage funding contribution to the
particular joint operation arrangement. This percentage can differ
from voting interest in instances where other parties to the
arrangement have carried interests in the arrangement and / or are
earning-in or diluting their voting interest in the arrangement;
and
(4)
Voting share or proportionate
share is where Denison accounts for its share of assets,
liabilities, revenues and expenses of the arrangement in relation
to its ownership interest or participating interest,
respectively.
WLUC and WLULP
were acquired by Denison as part of the Fission Energy Corp
acquisition in April 2013. Denison uses its voting interest to
account for its share of assets, liabilities, revenues and expenses
for these joint operations. In 2018, Denison funded 100% of the
activities in these joint operations pursuant to the terms of an
agreement that allows it to approve spending for the WLULP without
having the required 75% of the voting interest (see note
25).
29.
SUBSEQUENT
EVENTS
Bank of
Nova Scotia Credit Facility Renewal
On January 29,
2019, the Company entered into an amending agreement with BNS to
extend the maturity date of the 2018 facility (see note 17). Under
the 2019 facility amendment, the maturity date has been extended to
January 31, 2020. All other terms of the 2019 facility (tangible
net worth covenant, pledged cash, investments amounts and security
for the facility) remain unchanged from those of the 2018 facility,
and the Company continues to have access to credit up to
$24,000,000 the use of which is restricted to non-financial letters
of credit in support of reclamation obligations.
The 2019 facility
remains subject to letter of credit and standby fees of 2.40%
(0.40% on the first $9,000,000) and 0.75%
respectively.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
FOR THE YEAR ENDED DECEMBER 31,
2018
TABLE OF CONTENTS
PERFORMANCE HIGHLIGHTS
|
2
|
ABOUT DENISON
|
3
|
URANIUM INDUSTRY OVERVIEW
|
4
|
RESULTS OF CONTINUING OPERATIONS
|
7
|
Wheeler River
Project
|
10
|
Exploration Pipeline
Properties
|
18
|
DISCONTINUED
OPERATIONS
|
23
|
OUTLOOK
FOR 2019
|
28
|
ADDITIONAL
INFORMATION
|
30
|
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
|
42
|
This
Management’s Discussion and Analysis (‘MD&A’)
of Denison Mines Corp. and its subsidiary companies and joint
arrangements (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 7,
2019 and should be read in conjunction with the Company’s
audited consolidated financial statements and related notes for the
year ended December 31, 2018. The audited consolidated financial
statements are prepared in accordance with International Financial
Reporting Standards (‘IFRS’) as issued by the
International Accounting Standards Board (‘IASB’). All
dollar amounts in this MD&A are expressed in Canadian dollars,
unless otherwise noted. The audited consolidated financial
statements and MD&A for the year ended December 31, 2017 were
expressed in US dollars. See CHANGE IN SIGNIFICANT ACCOUNTING
POLICIES below.
Additional
information about Denison, including the Company’s press
releases, quarterly and annual reports, Annual Information Form and
Form 40-F is available through the Company’s filings with the
securities regulatory authorities in Canada at www.sedar.com
(‘SEDAR’) and the United States at
www.sec.gov/edgar.shtml (‘EDGAR’).
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
2018 PERFORMANCE
HIGHLIGHTS
■
Wheeler River indicated mineral resources increased by 88% to 132
million pounds of U
3
O
8
On January 31,
2018, Denison announced an 88% increase in the indicated mineral
resources estimated for the Wheeler River project (‘Wheeler
River’), located in northern Saskatchewan. The result was
attributable to an increase in the estimated resources at the
Gryphon deposit, which is estimated to contain, above a cut-off
grade of 0.2% U
3
O
8
, 61.9 million
pounds of U
3
O
8
(1,643,000 tonnes
at 1.71% U
3
O
8
) in indicated
mineral resources, plus 1.9 million pounds of U
3
O
8
(73,000 tonnes at
1.18% U
3
O
8
) in inferred
mineral resources. Together with the resources estimated for the
Phoenix deposit, Wheeler River is now host to 132.1 million pounds
of U
3
O
8
(1,809,000 tonnes
at an average grade of 3.3%) in total indicated mineral resources.
Following the resource update, Wheeler River retained and improved
its standing as the largest undeveloped high-grade uranium project
in the infrastructure rich eastern portion of the Athabasca Basin.
The updated mineral resource estimate was used in the preparation
of the Pre-Feasibility Study (‘PFS’).
■
Completion of the Wheeler River PFS with a project level pre-tax
NPV of $1.31 billion and IRR of 38.7%
On October 30,
2018, Denison filed a technical report in accordance with NI
43-101, for Wheeler River. The PFS results are highlighted by the
selection of the in-situ recovery ('ISR') mining method for the
Phoenix deposit, resulting in an estimated average operating cost
of $4.33 (USD$3.33) per pound U
3
O
8
. The project, on
a 100% basis, is estimated to have mine production of 109.4 million
pounds of U
3
O
8
over a 14-year
mine life, with a base case pre-tax Net Present Value ('NPV') of
$1.31 billion (8% discount rate), Internal Rate of Return ('IRR')
of 38.7%, and initial pre-production capital expenditures of $322.5
million. The base-case NPV assumes uranium sales are made at UxC
Consulting Company, LLC’s (‘UxC’) annual
estimated spot price (composite mid-point scenario in constant
dollars) for mine production from the Phoenix deposit (from
~USD$29/lb U
3
O
8
to USD$45/lb
U
3
O
8
), and a fixed
price for mine production from the Gryphon deposit (USD$50/lb
U
3
O
8
).
Upon the
completion of the PFS and in accordance with NI 43-101, Denison has
declared probable mineral reserves of 109.4 million pounds of
U
3
O
8
(Phoenix 59.7
million pounds U
3
O
8
from 141,000
tonnes at 19.1% U
3
O
8
, and Gryphon 49.7
million pounds U
3
O
8
from 1,257,000
tonnes at 1.8% U
3
O
8
), indicated
mineral resources (inclusive of reserves) of 132.1 million pounds
of U
3
O
8
, (1,809,000
tonnes at an average grade of 3.3%) and inferred mineral resources
of 3.0 million pounds of U
3
O
8
(82,000 tonnes at
an average grade of 1.7% U
3
O
8
), for Wheeler
River.
■
Acquisition of additional Wheeler River ownership
interest
On October 26,
2018, Denison completed a transaction with Cameco Corporation
('Cameco') to increase its ownership interest in the Wheeler River
Joint Venture ('WRJV') to 90%. Denison acquired Cameco's 23.92%
interest in the project in exchange for the issuance of 24,615,000
common shares of Denison.
■
Approval of the advancement of Wheeler River
In December 2018,
the Company’s Board of Directors, and the WRJV approved the
advancement of Wheeler River, following a detailed assessment of
the robust economic results demonstrated in the PFS. In support of
the decision to advance Wheeler River, the WRJV approved a $10.3
million budget for 2019 (100% basis), which is highlighted by plans
to initiate the Environmental Assessment (‘EA’)
process, the completion of ISR wellfield testing, as well as the
initiation of metallurgical pilot plant testing and other
engineering studies related to ISR mining.
■
Uranium mineralization discovered on regional explorations targets
at Wheeler River and Waterbury Lake
High-grade unconformity uranium northeast of Wheeler River's
Gryphon deposit
High-grade
uranium drill intercepts were obtained at the sub-Athabasca
unconformity to the northeast of the Gryphon deposit along the K
North trend. Results were highlighted by assays from drill hole
WR-704, which included 1.4% U
3
O
8
over 5.5 metres,
located 600 metres northeast of Gryphon and drill hole WR-710D1,
which included 1.1% U
3
O
8
over 3.0 metres,
located one kilometre northeast of Gryphon. Further potential for
mineralization exists, both at the unconformity and within the
basement, between the 200 metre-spaced drill fences.
Unconformity uranium and base metals on the K West trend at Wheeler
River
Highlights from
the Company's summer 2018 diamond drilling program at Wheeler River
include the discovery of unconformity-hosted mineralization on the
K West trend, including 0.30% U
3
O
8
, 4.7% Co, 3.7% Ni
and 0.55% Cu over one metre in drill hole WR-733D1, and 1.2% Cu and
0.49% Ni over six metres in drill hole WR-733D2. The K West trend
is a priority target area located approximately 500 metres west of
the parallel K North trend, which hosts the Gryphon deposit. The
results are encouraging and further drill testing is warranted to
the south, where up to five kilometres of strike length remains
untested along the K West trend.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Uranium mineralization on the GB Trend at Waterbury
Lake
Basement-hosted
uranium mineralization was intersected in two drill holes on the
Waterbury Lake property (65.92% Denison owned), at the interpreted
intersection of the regional Midwest structure with the GB trend,
approximately three kilometres northeast of the project's Huskie
deposit. Mineralized assay intervals included 0.43% U
3
O
8
over 1.0 metre
(including 0.73% U
3
O
8
over 0.5 metre)
in drill hole WAT18-478 and 0.45% U
3
O
8
over 0.5 metre,
as well as 0.31% U
3
O
8
over 0.5 metre
and 0.20% U
3
O
8
over 0.5 metre in
drill hole WAT18-479. The results validated the Company's
geological concept that uranium mineralization occurs at the
intersection of the interpreted regional Midwest structure with
cross-cutting, graphite-bearing, structural corridors. Follow-up is
warranted along the GB trend and at several other exploration
targets related to the interpreted regional Midwest
structure.
■
Maiden mineral resource estimate completed for the Huskie deposit
at Waterbury Lake
Denison completed
a maiden mineral resource estimate for the Huskie uranium deposit
(‘Huskie’) on the Waterbury Lake property. The mineral
resource estimate was completed in accordance with NI 43-101 and
CIM Definitions (2014), and was reviewed and audited by SRK
Consulting (Canada) Inc. ('SRK'), with a resulting estimate of 5.7
million pounds of U
3
O
8
(above a cut-off
grade of 0.1% U
3
O
8
) based on 268,000
tonnes of mineralization at an average grade of 0.96% U
3
O
8
. Since its
discovery in 2017, Denison has completed 28 drill holes at Huskie
at a spacing of approximately 50 metres x 50 metres to define a
basement hosted uranium deposit over a strike length of
approximately 210 metres and dip length of up to 215 metres. The
deposit has been interpreted to include three parallel, stacked
lenses of mineralization (Huskie 1, Huskie 2 and Huskie 3) which
vary in true thickness between approximately one and seven metres.
The effective date of the resource estimate is October 17,
2018.
■
Increase in mineral resources estimated for Midwest
On March 27,
2018, Denison reported an updated mineral resource estimate for the
Midwest Main and Midwest A deposits located on the Midwest property
(25.17% Denison owned), which is operated by Orano Canada Inc.
(‘Orano Canada’). Inferred mineral resources for the
property increased by 13.5 million pounds of U
3
O
8
and currently
total 18.2 million pounds of U
3
O
8
(846,000 tonnes
at 0.98% U
3
O
8
) above a cut-off
grade of 0.1% U
3
O
8
. Indicated
Mineral Resources for the property increased by 2.1 million pounds
of U
3
O
8
and currently
total 50.7 million pounds of U
3
O
8
(1,019,000 tonnes
at 2.3% U
3
O
8
) above a cut-off
grade of 0.1% U
3
O
8
.
■
Obtained financing for the Company’s 2019 Canadian
exploration activities
In November 2018,
the Company completed a $5,000,000 bought deal private placement
equity offering for the issuance of 4,950,495 common shares on a
flow-through basis at a price of $1.01 per share. The proceeds from
the financing will be used to fund Canadian exploration activities
through to the end of 2019.
Denison Mines
Corp. was formed under the laws of Ontario and is a reporting
issuer in all Canadian provinces. Denison’s common shares are
listed on the Toronto Stock Exchange (the ‘TSX’) under
the symbol ‘DML’ and on the NYSE American (formerly
NYSE MKT) exchange under the symbol ‘DNN’.
Denison is a
uranium exploration and development company with interests focused
in the Athabasca Basin region of northern Saskatchewan, Canada. In
addition to its 90% owned Wheeler River project, which hosts the
high grade Phoenix and Gryphon uranium deposits, Denison's
exploration portfolio consists of numerous projects covering
approximately 320,000 hectares in the Athabasca Basin region.
Denison's interests in Saskatchewan also include a 22.5% ownership
interest in the McClean Lake Joint Venture (‘MLJV’),
which includes several uranium deposits and the McClean Lake
uranium mill, which is currently processing ore from the Cigar Lake
mine under a toll milling agreement, plus a 25.17% interest in the
Midwest deposits and a 65.92% interest in the J Zone and Huskie
deposits on the Waterbury Lake property. The Midwest, J Zone and
Huskie deposits are located within 20 kilometres of the McClean
Lake mill.
Denison is
engaged in mine decommissioning and environmental services through
its Denison Environmental Services (‘DES’) division,
which manages Denison’s Elliot Lake reclamation projects and
provides post-closure mine and maintenance services as well as
environmental consulting services to a variety of industry and
government clients.
Denison is also
the manager of Uranium Participation Corporation
(‘UPC’), a publicly traded company listed on the TSX
under the symbol ‘U’, which invests in uranium oxide in
concentrates (‘U
3
O
8
’) and
uranium hexafluoride (‘UF
6
’).
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
CHANGE IN SIGNIFICANT ACCOUNTING POLICIES
Change in Presentation Currency
Effective January
1, 2018, Denison has changed its presentation currency to Canadian
dollars (‘CAD’) from US dollars (‘USD’).
This change in presentation currency was made to better reflect the
Company’s business activities, which, following the
divestiture of the Mongolian and African mining divisions in 2015
and 2016, are now solely focused in Canada, with the majority of
the Company’s entities, including all of its operating
entities, having the Canadian dollar as their functional currency.
The consolidated financial statements, for all years presented, are
shown in the new presentation currency. Previously, the results of
the Canadian functional currency entities had been translated to
the US dollar as follows:
●
The consolidated income
statements and consolidated statements of comprehensive income were
translated into the presentation currency using the average
exchange rates prevailing during each reporting
period.
●
Assets and liabilities on the
consolidated statements of financial position were translated using
the period-end exchange rates.
●
Shareholders’ equity
balances were translated using historical rates based on rates in
effect on the date of material transactions.
See note 3 of the
audited consolidated financial statements and REVENUES below for
further details relating to the change in presentation currency, as
well as the adoption of IFRS 9, Financial Instruments (‘IFRS
9’) and IFRS 15, Revenue from Contracts with Customers
(‘IFRS 15’).
STRATEGY
Denison’s
strategy is focused on leveraging its uniquely diversified asset
base to position the Company to take advantage of the strong
long-term fundamentals of the uranium market. The Company has built
a portfolio of strategic uranium deposits, properties, and
investments highlighted by a 90% interest in Wheeler River and a
minority interest in an operating and licensed uranium milling
facility in the MLJV, both located in the infrastructure rich
eastern portion of the Athabasca Basin region. While active in
exploring for new uranium discoveries in the region,
Denison’s present focus is on advancing Wheeler River to a
development decision, with the potential to become the next large
scale uranium producer in Canada. With a shortage of low cost
uranium development projects in the global project pipeline,
Denison is positioned to offer shareholders exposure to value
creation through both the development of a potentially top tier
asset, as well as a rising uranium price in future
years.
URANIUM INDUSTRY
OVERVIEW
The global
nuclear fuel market continues to navigate through difficult times.
While 2018 marked the seventh year of a prolonged downturn in the
nuclear fuel business following the 2011 Fukushima Daichii nuclear
incident, which led to the total shutdown of nuclear power
generation in Japan, events throughout the year provided clear
indications that positive change is beginning to
happen.
While volatile at
times, the spot price of uranium ended 2018 at USD$28.50 per pound
U
3
O
8
– 20%
higher than where it started the year at USD$23.75 per pound
U
3
O
8,
and 39% higher
than its 2018 intra-year low of USD$20.50 per pound U
3
O
8
in April 2018.
Since the low reached in April 2018, market observers have noted a
tangible shift in the market performance of the spot price, with
the price rising steadily through the balance of the
year.
Although the
uranium spot price has demonstrated some noticeable starts and
stops in its effort to recover over the past several years, there
has been some stability demonstrated in the 2018 spot price
increase, which has been supported, in part, by a number of events
on the supply side. Most significant of these events was
Cameco’s announcement that the temporary McArthur River
shutdown would become indefinite, with the timing of a restart
depending on future contracting and market conditions. At the same
time, Cameco reiterated its commitment to meet existing customer
obligations by purchasing large volumes of uranium in the spot
market. In addition, the world’s largest uranium producer,
National Atomic Company Kazatomprom (‘Kazatomprom’),
delivered on its previous commitments to curtail production –
resulting in a 20% reduction from previously planned production
levels. Kazatomprom also indicated that they will maintain this 20%
reduction in production in 2019 and 2020. Further significant
supply curtailments came from Paladin Energy Ltd, who placed their
Langer Heinrich operation in Namibia on care and maintenance during
2018 – a clear response to the low uranium price environment
and the lack of higher priced supply contracts to provide support
for continued operations.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Although not a
supply curtailment, the decision by Rio Tinto to sell its 68.2%
share in the Rössing operation in Namibia to China National
Uranium Corporation also represented a significant supply-side
event in 2018. While the sale does not result in a fundamental
change to supply and demand, this sale to China means that
Rössing production will most likely be destined for Chinese
consumption going forward – effectively removing another
decades-long source of primary production from those available to
global nuclear utilities.
On the demand
side there were fewer events of immediate impact, but still some
positive news. The growth of China’s nuclear industry
continues, with nuclear power generation in the country up 18.6%
from 2017. The country now has 45 nuclear plants in operation, with
an installed capacity of 45.9 GWh. Another 11 reactors are
currently under construction, moving the country towards its goal
of producing 58 GWh by 2020. In 2018, nuclear power accounted for
4.2% of China’s total electricity generation, contributing to
a reduction in the country’s annual CO
2
emissions by 290
million tonnes. Adding to the positive news out of China, after a
brief hiatus in the approval of new reactor projects, the Chinese
government announced in early February that it had given
preliminary approval for the construction of four new domestically
designed HPR-1000 reactors.
Japan’s
restart story continues to advance, albeit slowly. The country is
finally beginning to make meaningful progress in bringing its
nuclear fleet back online. In 2018, Japan increased its total
number of nuclear reactors in operation up to 9, proving that there
is a path to restart in the country. While Japan has struggled with
timely restarts over the past 8 years, the global nuclear energy
industry has continued to advance and has grown such that the level
of global nuclear power generation in 2018 recovered to the
pre-Fukushima levels reached in 2011.
During 2018,
transactions in the uranium spot market exceeded 88 million pounds
U
3
O
8
–
surpassing the previously recorded high of 56 million pounds
U
3
O
8
in 2011. This
increase in spot-market transaction activity was a significant
driver of the rising spot price in the year. While certain utility
end-users looked to take advantage of low-priced uranium available
in the market, the increase in transaction volume was mostly fueled
by producer and trader buying, as a result of production cutbacks,
as well as renewed interest from financial investors speculating in
the physical market. Of note was the establishment of a new
physical uranium fund – Yellow Cake PLC – traded on the
London Stock Exchange AIM, which purchased more than 8 million
pounds U
3
O
8
in
2018.
While spot market
volumes exceeded expectations, long-term contracting in the market
continued to lag. Over the past five years, less than 400 million
pounds of U
3
O
8
have been placed
under long-term contract, while utilities have utilized more than
800 million pounds U
3
O
8
over the same
period. Unfortunately, as some of the uncertainty surrounding
Fukushima started to fade and signposts emerged that many buyers
were planning to begin long-term contracting, new uncertainty was
introduced into the market. In January 2018, two US uranium
producers, Energy Fuels Inc. and UR Energy Inc., filed a Section
232 trade petition with the US Department of Commerce ('DOC') to
investigate whether uranium imports into that country are harmful
to its national security. These companies proposed a 25% domestic
purchase quota for US utilities as a potential remedy. It is
expected that the findings of the DOC as well as an ultimate
decision on whether a remedy will be imposed and what it will look
like, will be made by the US President as early as the second
quarter of 2019. This new source of uncertainty has loomed over the
global nuclear fuel market in 2018 and into 2019 – having a
direct impact on utilities based in the US, causing them to refrain
from re-entering the market until the impact of the petition is
better understood. This has contributed to less purchasing in the
long-term market through 2018. In their Q1 2019 Uranium Market
Outlook, UxC estimates that cumulative uncovered nuclear utility
requirements are now 1.6 billion pounds of U
3
O
8
through
2035.
Other important
demand-side events in 2018 have contributed to changing market
sentiment around the future of nuclear power and, in turn, the
outlook for the uranium market. These included:
●
The long anticipated release
of the French energy plan in November. Prior to the release, there
had been questions and concerns regarding potential plans by the
country to reduce its reliance on nuclear energy. Under the new
energy plan, France upheld its goal, introduced by previous French
President Hollande, to reduce its reliance on nuclear energy to
50%, but extended the time frame for this change by a decade - from
2025 to 2035. This was seen as a considerable win for nuclear
energy both in France, and globally.
●
On the heels of the French
energy plan announcement, the European Commission adopted a
long-term climate plan that calls for the European Union (EU) to
become the first major ‘climate neutral’ economy by
2050. The plan focuses heavily on the energy sector with the
commission stating that renewables and nuclear power will be the
backbone of a carbon-free European power system.
●
China continued with its
ambitious nuclear energy plans, starting seven new reactors in
2018. Also in 2018, the Chinese achieved first commercial operation
of two new reactor designs – Westinghouse Electric
Company’s AP1000 and France’s EPR. Completion of these
new designs is a positive signal to the industry that the designs
work, which will aid development of these reactor designs in other
jurisdictions.
●
On the slightly negative
side, the United Kingdom’s efforts to revitalize its nuclear
generation fleet experienced some setbacks in 2018, as Toshiba
announced plans to wind up its NuGen project which had planned to
build reactors on the northwest coast of England.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
There is a sense,
throughout the nuclear fuel industry, that 2018 was a year of
transition, with the impacts of production shutdowns and
curtailments beginning to take effect in earnest. In conjunction
with increasing nuclear generation, primary production is now in a
deficit in relation to annual reactor requirements, meaning that
there is a real drawdown of inventories and secondary supplies
taking place. As the industry gains clarity on the Section 232
trade petition under consideration in the US, increased
decision-making is expected to occur regarding long-term purchase
timing. Increased utility buying will need to occur in order to
make up for reluctant purchasing over the last few years, and the
market will likely need to respond with new or additional sources
of production. Annual requirements are growing, and existing supply
is falling, and this is ultimately expected to lead to questions of
security of supply – a concept that is paramount in
importance to global nuclear utilities. Ultimately, this shifting
trend is expected to lead to a market where higher prices are
required to incent producers to increase production and build new
mines. The companies positioned with the lowest cost of production,
and with a footprint in the most stable geopolitical regions are
likely to be the ones to benefit the greatest.
SELECTED ANNUAL FINANCIAL INFORMATION
(in
thousands, except for per share amounts)
|
|
|
|
Year Ended
December 31,
2018
CAD
|
|
Year Ended
December 31,
2017
CAD
|
|
Year Ended
December 31, 2016
USD
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
$
|
15,550
|
$
|
16,067
|
$
|
13,833
|
Exploration and
evaluation
|
|
|
$
|
(15,457)
|
$
|
(16,643)
|
$
|
(11,196)
|
Impairment
reversal (expense)
|
|
|
$
|
(6,086)
|
$
|
331
|
$
|
(2,320)
|
Net
loss
|
|
|
$
|
(30,077)
|
$
|
(19,454)
|
$
|
(11,699)
|
Basic and diluted
loss per share
|
$
|
(0.05)
|
$
|
(0.04)
|
$
|
(0.02)
|
Discontinued Operations:
|
|
|
|
|
|
|
Net
loss
|
$
|
-
|
$
|
(109)
|
$
|
(5,644)
|
Basic and diluted
loss per share
|
$
|
-
|
$
|
-
|
$
|
(0.01)
|
(in
thousands)
|
|
|
|
As at
December 31,
2018
CAD
|
|
As at
December 31,
2017
CAD
|
|
As at
December 31, 2016
USD
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
23,207
|
$
|
3,636
|
$
|
11,838
|
Investments in
debt instruments (GICs)
|
|
|
$
|
-
|
$
|
37,807
|
$
|
-
|
Cash, cash
equivalents and GICs
|
|
|
$
|
23,207
|
$
|
41,443
|
$
|
11,838
|
|
|
|
|
|
|
|
|
|
Working
capital
|
$
|
19,221
|
$
|
34,756
|
$
|
9,853
|
Property, plant
and equipment
|
$
|
258,291
|
$
|
249,002
|
$
|
187,982
|
Total
assets
|
$
|
312,187
|
$
|
326,300
|
$
|
217,423
|
Total long-term
liabilities
|
$
|
77,455
|
$
|
80,943
|
$
|
37,452
|
As noted above,
effective January 1, 2018, the Company changed its presentation
currency from USD to CAD. The consolidated financial statements for
all periods starting on or after January 1, 2017 have been restated
in accordance with IAS 8,
Accounting Policies, Changes in Accounting
Estimates and Errors
. Financial results before January 1,
2017 have not been restated and are therefore presented in US
dollars, as originally disclosed.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
2018
|
|
2018
|
|
2018
|
|
2018
|
(in
thousands, except for per share amounts)
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
4,144
|
$
|
3,729
|
$
|
4,104
|
$
|
3,573
|
Net
loss
|
$
|
(13,642)
|
$
|
(3,884)
|
$
|
(5,583)
|
$
|
(6,968)
|
Basic and diluted
loss per share
|
$
|
(0.02)
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
(0.01)
|
|
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
(in
thousands, except for per share amounts)
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
4,536
|
$
|
3,753
|
$
|
4,043
|
$
|
3,735
|
Net
loss
|
$
|
(1,833)
|
$
|
(7,627)
|
$
|
(8,870)
|
$
|
(1,124)
|
Basic and diluted
loss per share
|
$
|
-
|
$
|
(0.01)
|
$
|
(0.02)
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Significant items causing variations in quarterly
results
●
The Company’s toll
milling revenues fluctuate due to the timing of uranium processing
at the McClean Lake mill as well as the impact of the toll milling
financing transaction in the first quarter of 2017.
●
Revenues from DES fluctuate
due to the timing of projects, which vary throughout the year in
the normal course of business.
●
Exploration expenses are
generally largest in the first and third quarters, due to the
timing of the winter and summer exploration programs in
Saskatchewan.
●
The Company’s results
are also impacted, from time to time, by other non-recurring events
arising from its ongoing activities.
RESULTS OF CONTINUING
OPERATIONS
REVENUES
McClean Lake Uranium Mill
McClean Lake is
located on the eastern edge of the Athabasca Basin in northern
Saskatchewan, approximately 750 kilometres north of Saskatoon.
Denison holds a 22.5% ownership interest in the MLJV and the
McClean Lake uranium mill, one of the world’s largest uranium
processing facilities, which is currently processing ore from the
Cigar Lake mine under a toll milling agreement. The MLJV is a joint
venture between Orano Canada (formerly known as AREVA Resources
Canada Inc.) with a 70% interest, Denison with a 22.5% interest,
and OURD (Canada) Co. Ltd. with a 7.5% interest.
On February 13,
2017, Denison closed an arrangement with Anglo Pacific Group PLC
and one of its wholly owned subsidiaries (the ‘APG
Arrangement’) under which Denison received an upfront payment
of $43,500,000 in exchange for its right to receive future toll
milling cash receipts from the MLJV under the current toll milling
agreement with the Cigar Lake Joint Venture (‘CLJV’)
from July 1, 2016 onwards.
The APG
Arrangement consists of certain contractual obligations of Denison
to forward to APG the cash proceeds of future toll milling revenue
earned by the Company related to the processing of the specified
Cigar Lake ore through the McClean Lake mill, and as such, the
upfront payment was accounted for as deferred revenue. The Company
reflected payments made to APG of $3,520,000, representing the
Cigar Lake toll milling cash receipts received by Denison in
respect of toll milling activity for the period from July 1, 2016
through January 31, 2017, as a reduction of the initial upfront
amount received, reducing the initial deferred revenue balance to
$39,980,000.
Effective January
1, 2018, upon adoption of IFRS 15, the accounting policy for the
toll milling deferred revenue arrangement changed and the
comparative period has been restated to reflect this
change.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Under IFRS 15,
the arrangement with APG is deemed to contain a significant
financing component, as the cash consideration received upfront for
future toll milling cash receipts provides Denison with a financing
benefit. IFRS 15 requires that the amount of revenue recorded be
adjusted, such that the revenue recognized over the life of the APG
Arrangement will approximate the $39,980,000 net cash payment
received in advance plus an estimate of the interest expense to be
incurred over the life of the APG Arrangement, which reflects the
financing component of the arrangement. The discount rate to be
used to accrete the deferred revenue balance is based on the rate
that would be expected in a separate financing transaction between
the entity and its customer at contract inception, taking into
consideration the Company’s credit risk. Denison will record
accretion expense on the deferred revenue balance using an annual
interest rate of 8.5%.
IFRS 15 also
requires entities to allocate the total revenue to be recognized
over the life of the contract to each performance obligation in the
contract (in this case, the toll milling of the Cigar Lake
specified ore). The result being that the drawdown of deferred
revenue will be based on a weighted average toll milling rate
applied to actual processing activity at the mill. As the toll
milling arrangement with the CLJV is based on the processing of
specific ores, which are based on estimates, any change to the
resources estimated for the specific ores, or to the timing of the
processing of said ores, will impact the weighted average toll
milling rate to be used for the contract, and will result in a
cumulative catch up adjustment in the period that the change in
estimate occurs.
During the year
ended December 31, 2018, the McClean Lake mill processed 18.0
million pounds U
3
O
8
for the CLJV
(2017 – 18.0 million pounds U
3
O
8
). In 2018, the
Company recorded toll milling revenue of $4,239,000 (2017 –
$5,029,000). The decrease in toll milling revenue in 2018 compared
to the prior year is due to two factors. The APG Arrangement was in
place for the full year in 2018, compared to 11 months in the same
period of 2017. The accounting for the APG Arrangement commenced in
February 2017 (and continued through 2018), and the Company began
to recognize revenue using a weighted average rate, which was lower
than the toll milling rate at the time. Further, as a result of an
update to the published Cigar Lake mineral resource in early 2018,
the Company recorded a cumulative catch up in toll milling revenue,
as required by IFRS 15, which resulted in a reduction in toll
milling revenue in the first quarter of 2018.
During the year
ended December 31, 2018, the Company also recorded an accretion
expense of $3,314,000 on the toll milling deferred revenue balance
(2017 – $3,115,000). The increase in accretion expense
compared to the prior year is predominantly due to the fact that
the Company only recorded an accretion expense for 11 months in the
prior period, following the completion of the APG Arrangement in
February 2017, compared to a full year of accretion expense in
2018. The annual accretion expense will decrease over the life of
the contract as the deferred revenue liability decreases over
time.
Denison Environmental Services
Mine
decommissioning and environmental services are provided through
Denison’s DES division – providing long-term care and
maintenance for closed mine sites since 1997. With offices in
Ontario (Elliot Lake and Sudbury), the Yukon Territory and Quebec,
DES manages Denison’s Elliot Lake reclamation projects and
provides post-closure mine care and maintenance services as well as
environmental consulting services to various
customers.
Revenue from DES
during 2018 was $9,298,000 (2017 - $9,232,000). The increase in
revenue in 2018, as compared to 2017, was due to an increase in
consulting revenues, partially offset by a decrease in activity at
certain care and maintenance sites.
Management Services Agreement with UPC
Denison provides
general administrative and management services to UPC. Management
fees and commissions earned by Denison provide a source of cash
flow to partly offset corporate administrative expenditures
incurred by the Company during the year.
During 2018,
revenue from the Company’s management contract with UPC was
$2,013,000 (2017 - $1,806,000). The increase in revenues during
2018, compared to the prior year, was due to an increase in
management fees earned based on UPC’s monthly net asset value
(‘NAV’) as well as an increase in discretionary
management fees, partially offset by a decrease in commission-based
fees. UPC’s balance sheet consists primarily of uranium held
either in the form of U
3
O
8
or UF
6
, which is
accounted for at its fair value. The increase in NAV-based
management fees was due to the increase in the average fair value
of UPC’s uranium holdings during the year ended December 31,
2018, compared to the prior year, resulting from both higher
uranium spot prices and increased uranium holdings. The increase in
discretionary fees was due to a $50,000 discretionary fee awarded
to Denison during the second quarter of 2018. The decrease in
commission-based fees was due to a decrease in uranium purchases by
UPC during 2018, as compared to 2017. Denison earns a 1% commission
on the gross value of UPC’s uranium purchases and
sales.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
OPERATING EXPENSES
Canada Mining
Operating
expenses of the Canadian mining segment include depreciation and
development costs, and may also include certain adjustments to the
estimates of future reclamation liabilities at McClean Lake,
Midwest and Elliot Lake.
Operating
expenses in 2018 were $7,528,000 (2017 - $5,304,000). In 2018,
operating expenses included depreciation of the McClean Lake mill
of $3,264,000 (2017 - $3,895,000), as a result of processing
approximately 18.0 million pounds U
3
O
8
for the CLJV
(2017 – 18.0 million pounds). The decrease in depreciation
during 2018 was primarily driven by a reduction in the
units-of-production depreciation rate due to an increase in the
estimate of the future production to be processed through the
mill.
In 2018,
operating expenses also included development and other operating
costs related to the MLJV of $3,893,000 (2017 – $1,336,000),
predominantly due to the advancement of the Surface Access Borehole
Resource Extraction (‘SABRE’) mining technology, as
part of a multi-year test mining program operated by Orano Canada
within the MLJV. During 2018, the SABRE team continued engineering
and procurement activities related to development of the mining
equipment and high pressure pumping systems. In addition, four
access holes were drilled and cased from surface to the top of the
McClean North deposit. The holes will allow for mining of the
orebody during the latter stages of the test mining program,
currently scheduled to occur in 2020.
In 2018, the
Company also recorded operating expenses related to an increase in
the estimate of reclamation liabilities at Elliot Lake of $369,000
(2017 - $71,000). In 2018, the increase in the reclamation
liability was due to an increase in labour cost estimates as well
as changes in the long-term discount rate used to estimate the
present value of the reclamation liability. Refer to REclamation
Sites below for further detail.
Environmental Services
Operating
expenses during 2018 totaled $8,211,000 (2017 - $8,230,000). The
expenses relate primarily to care and maintenance and consulting
services provided to clients, and include labour and other costs.
The decline in operating expenses in 2018, compared to 2017, is
predominantly due to a decrease in activity at certain care and
maintenance sites.
CANADIAN MINERAL PROPERTY EXPLORATION & EVALUATION
During 2018, the
Company continued to focus on its high priority projects in the
Athabasca Basin region in Saskatchewan. Denison’s share of
exploration and evaluation expenditures in 2018 was $15,457,000
(2017 – $16,643,000). Exploration spending in Canada is
seasonal, with spending higher during the winter exploration season
(January to mid-April) and summer exploration season (June to
mid-October) in the Athabasca Basin. During 2018, the
Company’s exploration and evaluation expenditures decreased,
primarily due to decreased exploration activity at Wheeler River,
partially offset by increased evaluation activities at Wheeler
River associated with the completion of the PFS in 2018, as well as
increased activities at certain exploration pipeline properties,
including the Hook-Carter and Waterbury Lake projects. The
following table summarizes the activities that were completed
during 2018.
CANADIAN EXPLORATION & EVALUATION ACTIVITIES
|
Property
|
Denison’s
ownership
(1)
|
Drilling in metres (m)
|
Other activities
|
Wheeler
River
|
90%
(2)
|
39,555 (60
holes)
|
Mineral resource
update,
Completion of
PFS
|
|
Waterbury
Lake
|
65.92%
(3)
|
13,110 (28
holes)
|
Mineral resource
update,
Geophysical
surveys
|
|
Hook-Carter
|
80%
(4)
|
6,960 (9
holes)
|
-
|
|
South
Dufferin
|
100%
|
1,331 (9
holes)
|
-
|
|
Midwest
|
25.17%
|
4,709 (12
holes)
|
Mineral resource
update
|
|
McClean
Lake
|
22.5%
|
2,565 (9
holes)
|
-
|
|
Total
|
|
68,230 (127 holes)
|
|
(1)
The Company’s ownership
as at December 31, 2018.
(2)
Denison increased its
ownership of Wheeler River through the acquisition of 100% of
Cameco’s ownership in the property effective October 26,
2018. See below for further details.
(3)
Denison earned an additional
1.70% interest in the Waterbury Lake property during 2018, earning
1.23% effective May 31, 2018 and an additional 0.47% effective
October 31, 2018. Refer to RELATED PARTY TRANSACTIONS for further
details.
(4)
The Company acquired an 80%
ownership in the Hook-Carter project in November 2016 from ALX
Uranium Corp. (‘ALX’) and has agreed to fund
ALX’s share of the first $12.0 million in expenditures on the
project. See below for further details.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
The
Company’s land position in the Athabasca Basin, as at
December 31, 2018, is illustrated in the figure below. The
Company’s Athabasca land package increased marginally during
the fourth quarter of 2018, from 320,166 hectares (292 claims) to
320,834 hectares (292 claims), due to the acquisition of a claim
contiguous with the Company’s South Dufferin
property.
Wheeler River Project
Project Highlights:
●
PFS
results suggest Phoenix may become the lowest cost uranium mining
operation globally
On September 24,
2018, the Company announced the results of the PFS for Wheeler
River. The PFS was completed in accordance with NI 43-101 and is
highlighted by the selection of the ISR mining method for the
development of the Phoenix deposit, with an estimated average
operating cost of $4.33 (USD$3.33) per pound U
3
O
8
.
The PFS considers
the potential economic merit of co-developing the Phoenix and
Gryphon deposits. The high-grade Phoenix deposit is designed as an
ISR mining operation, with associated processing to a finished
product occurring at a plant to be built on site at Wheeler River.
The Gryphon deposit is designed as an underground mining operation,
utilizing a conventional long hole mining approach with processing
of mine production assumed at Denison’s 22.5% owned McClean
Lake mill. Taken together, the project is estimated to have mine
production of 109.4 million pounds U
3
O
8
over a 14-year
mine life, with a base case pre-tax NPV of $1.31 billion (8%
discount rate), IRR of 38.7%, and initial pre-production capital
expenditures of $322.5 million.
The base-case
economic analysis assumes uranium sales are made at UxC’s
annual estimated spot price (composite mid-point scenario in
constant dollars) for mine production from the Phoenix deposit
(from ~USD$29/lb U
3
O
8
to USD$45/lb
U
3
O
8
), and a fixed
price for mine production from the Gryphon deposit (USD$50/lb
U
3
O
8
).
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Using the same
price assumed for the project’s 2016 preliminary economic
analysis (‘2016 PEA’), a fixed uranium price of
USD$44/lb U
3
O
8
, the PFS plan
produces a combined pre-tax project NPV of $1.41 billion –
representing roughly 2.75 times the $513 million pre-tax project
NPV estimated in the 2016 PEA. The 2016 PEA is disclosed in the
report entitled ‘Preliminary Economic Assessment for the
Wheeler River Uranium Project, Saskatchewan, Canada, dated March
31, 2016.
The PFS was
prepared on a project (100% ownership) and pre-tax basis. Denison
completed an indicative post-tax assessment based on a 90%
ownership interest, yielding a base case post-tax NPV of $755.9
million and post-tax IRR of 32.7%, with initial capital costs to
Denison of $290.3 million.
●
Acquisition
of Cameco’s Minority Interest in the WRJV
On October 26,
2018, Denison completed the acquisition of Cameco’s minority
interest in the WRJV in exchange for the issuance of 24,615,000
shares of Denison. The agreement had been subject to certain rights
of first refusal (‘ROFR’) in favour of JCU (Canada)
Exploration Co. Ltd (‘JCU’). JCU waived its ROFR rights
in respect of the purchase, and as a result, Denison acquired
Cameco’s entire (then 23.92%) interest in the WRJV and
increased the Company’s ownership interest in the WRJV to
90%.
●
The
largest undeveloped uranium project in the eastern Athabasca
Basin
Upon completion
of the PFS and in accordance with NI 43-101 standards, the Company
has declared the following mineral reserves and
resources.
●
Probable mineral reserves of 109.4 million
pounds U
3
O
8
(Phoenix 59.7 million pounds U
3
O
8
from 141,000
tonnes at 19.1% U
3
O
8
; Gryphon 49.7
million pounds U
3
O
8
from 1,257,000
tonnes at 1.8% U
3
O
8
);
●
Indicated mineral resources (inclusive of
reserves) of 132.1 million pounds U
3
O
8
(1,809,000 tonnes at an average grade of 3.3% U
3
O
8
);
plus
●
Inferred mineral resources of 3.0 million
pounds U
3
O
8
(82,000
tonnes at an average grade of 1.7% U
3
O
8
).
●
Potential
for resource growth
The Gryphon
deposit is a high-grade uranium deposit that belongs to a select
group of large basement-hosted uranium deposits in the eastern
Athabasca Basin, which includes Cameco’s Eagle Point mine and
Millennium deposit, and Rio Tinto's Roughrider deposit. The Gryphon
deposit remains open in numerous areas with significant potential
for future resource growth. Priority target areas include down
plunge and along strike of the A and B series lenses, and within
the currently defined D series lenses, where additional high-grade
shoots may exist.
In addition, very
little regional exploration has taken place on the property in
recent years, with drilling efforts focussed on Phoenix and
Gryphon, which were discovered in 2008 and 2014 respectively. The
property is host to numerous uranium-bearing lithostructural
corridors which are under- or unexplored and have the potential for
additional large, high-grade unconformity or basement hosted
deposits. Exploration drilling is warranted along these corridors
to follow-up on previous mineralized drill results, or to test
geophysical targets identified from past surveys.
Further details
regarding Wheeler River, including the estimated mineral reserves
and resources and PFS, are provided in the Technical Report for the
Wheeler River project titled ‘Pre-feasibility Study Report
for the Wheeler River Uranium Project, Saskatchewan, Canada’
prepared by Mark Liskowich, P.Geo. of SRK Consulting (Canada) Inc.
with an effective date of September 24, 2018 (‘PFS Technical
Report’). A copy of this report is available on
Denison’s website and under its profile on each of SEDAR and
EDGAR.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
The Wheeler River
property location and basement geology map is provided
below.
Evaluation Program
During 2018,
Denison’s share of evaluation costs at Wheeler River amounted
to $3,130,000 (2017 - $2,248,000), which related to work on the PFS
as well as environmental activities.
PFS Activities
On September 24,
2018, Denison announced the results of the PFS for Wheeler River,
and subsequently filed the PFS Technical Report on October 30,
2018.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
PFS Highlights
●
Phoenix delivers exceptional operating costs and manageable initial
capex with ISR
Mine
life
|
10 years (6.0 million lbs. U
3
O
8
per year on
average)
|
Probable reserves
(1)
|
59.7 million lbs.
U
3
O
8
(141,000 tonnes
at 19.1% U
3
O
8
)
|
Average
cash operating costs
|
$4.33 (USD$3.33) per lb. U
3
O
8
|
Initial
capital costs
|
$322.5
million
|
Base case pre-tax IRR
(2)
|
43.3%
|
Base case pre-tax NPV
8%
(2)
|
$930.4
million
|
Base
case price assumption
|
UxC spot price
(3)
(from ~USD$29 to USD$45/lb.
U
3
O
8
)
|
Operating profit margin
(4)
|
89.0% at USD$29/lb. U
3
O
8
|
All-in cost
(5)
|
$11.57 (USD$8.90) per lb. U
3
O
8
|
(1)
See the PFS
Technical Report for additional information regarding probable
reserves;
(2)
NPV and IRR
are calculated to the start of pre-production activities for the
Phoenix operation in 2021;
(3)
Spot price
forecast is based on “Composite Midpoint” scenario from
UxC’s Q3’2018 Uranium Market Outlook
(“UMO”) and is stated in constant (not-inflated)
dollars;
(4)
Operating
profit margin is calculated as uranium revenue less operating
costs, divided by uranium revenue. Operating costs exclude all
royalties, surcharges and income taxes;
(5)
All-in cost is estimated on a pre-tax basis and
includes all project operating costs and capital costs, divided by
the estimated number of pounds U
3
O
8
to be produced.
●
Gryphon leverages existing infrastructure and provides additional
low-cost production
Mine
life
|
6.5 years (7.6 million lbs. U
3
O
8
per year on
average)
|
Probable reserves
(1)
|
49.7M lbs.
U
3
O
8
(1,257,000 tonnes
at 1.8% U
3
O
8
)
|
Average
cash operating costs
|
$15.21 (USD$11.70) per lb. U
3
O
8
|
Initial
capital costs
|
$623.1
million
|
Base case pre-tax IRR
(2)
|
23.2%
|
Base case pre-tax NPV
8%
(2)
|
$560.6
million
|
Base
case price assumption
|
USD$50 per pound U
3
O
8
|
Operating profit margin
(3)
|
77.0% at USD$50/lb. U
3
O
8
|
All-in cost
(4)
|
$29.67 (USD$22.82) per lb. U
3
O
8
|
(1)
See the PFS
Technical Report for additional information regarding probable
reserves;
(2)
NPV and IRR
are calculated to the start of pre-production activities for the
Gryphon operation in 2026;
(3)
Operating
profit margin is calculated as uranium revenue less operating
costs, divided by uranium revenue. Operating costs exclude all
royalties, surcharges and income taxes;
(4)
All-in cost is estimated on a pre-tax basis and
includes all project operating costs and capital costs, divided by
the estimated number of pounds U
3
O
8
to be produced.
●
Denison indicative post-tax results for Wheeler River (Phoenix and
Gryphon) at 90% ownership
Initial
capital costs
|
$290.3
million
|
Base case pre-tax IRR
(1)
|
32.7%
|
Base case pre-tax NPV
8%
(1)
|
$755.9
million
|
(1)
NPV and IRR
are calculated to the start of pre-production activities for the
Phoenix operation in 2021;
●
Selection of ISR mining method
for high-grade Phoenix deposit
– Following the completion of the 2016 PEA,
the Company evaluated 32 alternate mining methods to replace the
high-cost Jet Bore Mining System assumed for the Phoenix deposit in
the 2016 PEA. The suitability of ISR mining for Phoenix has been
confirmed by significant work completed in the field and laboratory
– including drill hole injection, permeability, metallurgical
leach, agitation, and column tests. Results demonstrate high rates
of recovery in both extraction (greater than 90%) and processing
(98.5%) following a simplified flow sheet that precipitates uranium
directly from the uranium bearing solution recovered from the
wellfield, without the added costs associated with ion exchange or
solvent extraction circuits.
●
Novel application of
established mining technologies
– Given the unique geological setting of the
Phoenix deposit, straddling the sub-Athabasca unconformity in
permeable ground, the project development team has combined the use
of existing and proven technologies from ISR mining, ground
freezing, and horizontal directional drilling to create an
innovative model for in situ uranium extraction in the Athabasca
Basin. While each of the technologies are well established, the
combination of technologies results in a novel mining approach
applicable only to deposits occurring in a similar geological
setting to Phoenix – which now represents the first deposit
identified for ISR mining in the Athabasca
Basin.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
●
Environmental advantages of ISR
mining at Phoenix
– The
Company’s evaluation of the ISR mining method for Phoenix has
also identified several significant environmental and permitting
advantages, namely the absence of tailings generation, the
potential for no water discharge to surface water bodies, and the
potential to use the existing Provincial power grid to operate on a
near zero carbon emissions basis. In addition, the use of a freeze
wall, to encapsulate the ore zone and contain the mining solution
used in an ISR operation, eliminates common environmental concerns
associated with ISR mining and facilitates a controlled reclamation
of the site. Taken together, the Phoenix operation has the
potential to be one of the most environmentally friendly mining
operations in the world. Owing largely to these benefits,
consultation with regulatory agencies and stakeholder communities,
to date, has been encouraging regarding the use of ISR
mining.
Environmental and Sustainability Activities
During 2018, the
Company continued with the community consultation and engagement
process – ensuring the continuous engagement of stakeholders.
This included meetings with community leadership and economic
development groups, community townhall sessions and workshops as
well as more informal correspondence.
After careful
consideration of the PFS economic results, risks and opportunities
associated with permitting and concurrent advancement of project
engineering activities, the Company has decided to submit a Project
Description (‘PD’) and initiate the EA process in early
2019 for the Phoenix ISR project. The permitting process of the
Gryphon project will commence at a later date, in order to meet the
PFS plan for first production of Gryphon ore by 2030. This
staggered approach is expected to simplify the EA and permitting
process for the Phoenix project and reduce the capital required to
advance the project to a definitive development decision. Following
completion of the PFS, drafting of the PD was initiated with
submission of the document to federal and provincial authorities
occurring in February 2019.
In 2018 the
Company also continued environmental baseline data collection in
key areas to better characterize the existing environment in the
project area. This data will form the foundation of the
environmental impact assessment for the project. The information
will also be used in the design of various aspects of the project,
including the location and layout of site infrastructure, the
location for treated effluent discharge and fresh water intake, and
the designs of water treatment plants, waste storage facilities,
and other project activities interacting with the environment.
Programs in progress and/or completed during the fourth quarter
included:
●
Aquatic environment:
assessment and data
collection of surface water flow conditions (streamflow
measurements, oxygen dynamics, hydroacoustic imaging, and eDNA) in
key areas, including discharge location and downstream water
bodies, and sampling and assaying of groundwater in the local and
regional project area;
●
Terrestrial environment:
additional
surveys were completed to characterize the terrestrial environment
for vegetation and wildlife including ungulates habitat and
territory;
●
Waste rock geochemistry:
ongoing
sampling of waste rock run-off continues;
●
Atmospheric environment:
collection of
air quality measurements continues in order to gather information
on pre-development atmospheric conditions; and
●
Groundwater sampling:
sampling of
groundwater from shallow wells in the project area.
Exploration Program
Denison’s
share of exploration costs at Wheeler River amounted to $6,883,000
during the winter and summer 2018 diamond drilling programs (2017 -
$9,340,000) for a total of 39,555 metres in 60 drill holes.
Drilling statistics for 2018 are provided in the table
below.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Target Areas
|
Completed Holes
|
Total Holes Completed
|
Total Meters
|
Parent
|
Daughter
(1)
|
Gryphon
|
Gryphon
Northeast
(E
series lenses)
|
6
|
3
|
9
|
5,685.80
|
Gryphon
Northeast
(A
series lenses)
|
3
|
2
|
5
|
3,719.80
|
Gryphon
Southwest
(D
series lenses)
|
8
|
1
|
9
|
6,215.90
|
Gryphon Subtotal
|
17
|
6
|
23
|
15,621.50
|
Regional
|
K
North
|
10
|
3
|
13
|
9,134.30
|
K
West
|
7
|
2
|
9
|
6,576.30
|
K
South
|
4
|
0
|
4
|
2,370.00
|
Q
South
|
6
|
0
|
6
|
3,306.00
|
Q
Central
|
5
|
0
|
5
|
2,547.00
|
Regional Subtotal
|
32
|
5
|
37
|
23,933.60
|
Total
|
49
|
11
|
60
|
39,555.10
|
1.
Drilled as subsurface
‘off-cut’ holes from surface ‘parent’ holes
using a wedge followed by directional drilling.
Final assay
results from the winter and summer drilling programs were received
in May 2018 and November 2018, respectively, and were reported in
Denison’s press release dated June 6, 2018 and
Denison’s third quarter MD&A dated November 12, 2018.
Highlight results for the 2018 drilling program are described as
follows, with highlight assay results summarized in the table
below. Location of the target areas are shown in the figure
below.
Gryphon Exploration – Along Strike to the Northeast and
Southwest
A total of 14
holes were completed during 2018 to the northeast of Gryphon to
test for extensions to the A series lenses (basement) and the E
series lenses (unconformity and upper basement). Drilling was
undertaken as step-outs 50 or 100 metres immediately along strike
of the Gryphon deposit lenses. Multiple uranium intercepts were
obtained, including highlight assay results as
follows:
●
Intercepts of upper basement
mineralization extending the E series lenses along strike to the
northeast by approximately 250 metres: 2.9% U
3
O
8
over 1.5 metres
in drill hole WR-696; 1.2% U
3
O
8
over 1.5 metres
in drill hole WR-709; and 0.29% U
3
O
8
over 3.0 metres
in drill hole WR-702; and
●
Intercept of basement
mineralization extending the A series lenses down plunge to the
northeast by approximately 200 metres: 0.85% U
3
O
8
over 5.0 metres
in drill hole WR-698, and 0.48% U
3
O
8
over 2.5 metres
in drill hole WR-703.
A total of nine
drill holes were completed to the southwest of the Gryphon deposit
to test for unconformity mineralization along the Basal Fault at
the up plunge projection of the D series lenses. Results included
the intersection of mineralization, in drill hole WR-722D1 (0.13%
U
3
O
8
over 1.5 metres),
immediately below the unconformity. The continuity of significant
sandstone structure and strong hydrothermal alteration over the 500
metres of strike length tested suggests further potential for
unconformity mineralization associated with the Basal Fault. This
target horizon is wide-open to the southwest and a priority target
exists a further 400 metres to the southwest where previous
drilling returned weak basement mineralization along the Basal
Fault and 4.5% U
3
O
8
over 4.5 metres
(drill hole WR-597) at the intersection of the unconformity with
the G-Fault.
The Gryphon
deposit remains open in numerous areas and the results confirm the
potential to expand the Gryphon mineral resource outside of the
current extents of the deposit.
K North
During the winter
2018 drill program high-grade intercepts were obtained at the
sub-Athabasca unconformity along the K North trend, to the
northeast of Gryphon, from reconnaissance drill fences spaced 200
metres apart. Highlight results from the eight drill holes
completed included 1.4% U
3
O
8
over 5.5 metres
in drill hole WR-704 (located 600 metres northeast of Gryphon) and
1.1% U
3
O
8
over 3.0 metres
in drill hole WR-710D1 (located 1 kilometre northeast of Gryphon).
Follow-up drilling was undertaken during the summer 2018 program in
five drill holes on the 200 metre-spaced drill fences, designed to
extend the unconformity mineralization on section and along strike.
Additional mineralization was intersected 600 metres northeast of
Gryphon, including 0.15% U
3
O
8
over 1.0 metre in
drill hole WR-704D1. Further potential for mineralization exists,
both at the unconformity and within the basement, between the 200
metre-spaced drill fences.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
K West
The K West trend
is a priority target area located approximately 500 metres west of
the parallel K North trend, which hosts the Gryphon deposit.
Previous drilling results, from 2016 and winter 2018, included
significant structure and alteration, and associated weak uranium
mineralization within the basement rocks along the K West fault
zone. The summer 2018 drilling program, which included 3,222 metres
in 5 drill holes in this area, was designed to test the K West
fault zone at the sub-Athabasca unconformity on the northern
portion of the trend. Highlight results include the intersection of
uranium and base-metal mineralization at the unconformity,
including 0.30% U
3
O
8
, 4.7% Co, 3.7% Ni
and 0.55% Cu over one metre in drill hole WR-733D1, and 1.2% Cu and
0.49% Ni over six metres in drill hole WR-733D2.
The results are
associated with significant structure and alteration in the
overlying sandstone, as well as elevated uranium values, averaging
17 ppm uranium (partial digest ICP-MS), extending up to 100 metres
above the unconformity. Further drilling is warranted to test this
target horizon to the south, where up to five kilometres of strike
length remains untested along the K West trend.
Q Central, Q South, K South
Regional
exploration drilling was undertaken at Q Central (five drill
holes), Q South (six drill holes) and at K South (four drill holes)
to test geological and geophysical targets on a reconnaissance
scale. Favourable geology, structure, alteration and anomalous
geochemistry was encountered in all the target areas and follow-up
drilling has been planned at Q South and K South for winter
2019.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
HIGHLIGHTS OF ASSAY RESULTS FOR WHEELER RIVER 2018 DRILL
HOLES
|
Hole Number
|
From
(m)
|
To
(m)
|
Length
4
(m)
|
Grade
(% U
3
O
8
)
1,2,3
|
Target Area
|
WR-698
|
777.0
|
782.0
|
5.0
|
0.85
|
Gryphon A
Lens
|
WR-703
|
806.5
|
809.0
|
2.5
|
0.48
|
Gryphon A
Lens
|
WR-696
|
595.2
|
596.7
|
1.5
|
2.9
|
Gryphon E
Lens
|
WR-709
|
580.6
|
582.1
|
1.5
|
1.2
|
Gryphon E
Lens
|
WR-702
|
543.4
|
546.4
|
3.0
|
0.29
|
Gryphon E
Lens
|
WR-722D1
|
592.0
|
593.5
|
1.5
|
0.13
|
Gryphon D
Lens
|
WR-704
|
562.2
|
567.7
|
5.5
|
1.4
|
K
North
|
WR-710D1
|
567.3
|
570.3
|
3.0
|
1.1
|
K
North
|
WR-704D1
|
573.5
|
574.5
|
1.0
|
0.15
|
K
North
|
WR-733D1
5
|
651.1
|
652.1
|
1.0
|
0.30
|
K
West
|
1
. U
3
O
8
is the
chemical assay of mineralized split core samples.
2. Composited
above a cut-off grade of 0.05% U
3
O
8
.
3. Composites
compiled using 1.0 metre minimum mineralization thickness and 2.0
metres maximum waste.
4. True thickness
of the mineralization is not yet determined.
5. The interval
in WR-733D1 also contains 4.7% Co, 0.55% Cu 3.7% Ni and 9.9%
As.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Exploration Pipeline Properties
During 2018, the
Company managed or participated in five other drilling exploration
programs (three operated by Denison) on the Company’s
pipeline properties, as reported in previous quarters. No
Denison-operated field exploration programs were conducted during
the fourth quarter of 2018, however, desk-top interpretations of
2018 results and planning activities for the 2019 work programs
were carried out. Exploration pipeline property highlights for 2018
include the results of the Company’s exploration program at
its Waterbury Lake and Hook-Carter properties, as described
below.
Waterbury Lake
Denison’s
Waterbury Lake project, which includes the J Zone and Huskie
uranium deposits, is located within 20 kilometres of the McClean
Lake mill, and is situated near the Roughrider, Midwest Main and
Midwest A deposits. The project is the sole asset of the Waterbury
Lake Uranium Limited Partnership (“WLULP”), which is
owned by Denison (65.92%) and its project partner, Korea Waterbury
Uranium Limited Partnership (‘KWULP’) (34.06%). The
remaining 0.02% interest in the WLULP is held by the WLULP’s
general partner, Waterbury Lake Uranium Corporation (jointly owned
by Denison (60%) and KWULP (40%)). KWULP consists of a consortium
of investors in which Korea Hydro & Nuclear Power
(‘KHNP’) holds a majority position. KWULP elected not
to fund the 2018 program and to dilute their ownership
interest.
Total exploration
costs incurred during 2018 were $3,275,000 (2017 –
$2,043,000). While the Company is funding 100% of the project cost,
it accounts for its ownership share of spending by the WLULP
(65.92% effective October 31, 2018) as exploration expense during
the period, and will ultimately account for the remainder of the
expenditures as a mineral property addition related to the periodic
cash contributions made by the Company to the WLULP, and the
subsequent dilution of KWULP’s interest. Accordingly,
Denison’s share of the exploration expenditures during 2018
were $2,120,000 (2017 – $1,296,000). Refer to TRANSACTIONS
WITH RELATED PARTIES below for further details regarding the
dilution of KHNP’s interest that occurred during the
year.
Huskie Zone Drilling
The Huskie zone
of high-grade basement-hosted uranium mineralization was discovered
by Denison during the summer of 2017 and is located approximately
1.5 kilometres to the northeast of the property's J Zone uranium
deposit.
A total of
twenty-four drill holes were completed as part of the 2018 program,
designed to extend the Huskie zone mineralization. Drilling was
conducted as 50 metre step-outs from known mineralization (19 drill
holes), and as larger 100 to 500 metres step-outs along strike to
the west (five drill holes). Highlights from the 2018 drilling
include basement intersections from the 50 metre step-outs from
known mineralization, as summarized in the table
below.
HIGHLIGHTS OF ASSAY RESULTS FOR 2018 HUSKIE DRILL
HOLES
|
Hole Number
|
From
(m)
|
To
(m)
|
Length
5
(m)
|
Grade
(% U
3
O
8
)
1,2,4
|
WAT18-452
|
405.5
|
409.5
|
4.0
|
0.18
|
and
|
416.0
|
417.0
|
1.0
|
0.10
|
and
|
419.5
|
425.5
|
6.0
|
4.5
|
including
3
|
419.5
|
424.0
|
4.5
|
5.8
|
and
|
435.7
|
442.0
|
6.3
|
0.57
|
including
3
|
438.0
|
439.0
|
1.0
|
1.9
|
WAT18-460A
|
303.0
|
304.0
|
1.0
|
0.62
|
WAT18-475A
6
|
277.5
|
278.5
|
1.0
|
0.12
|
and
6
|
285.5
|
286.5
|
1.0
|
0.15
|
1.
U
3
O
8
is the chemical
assay of mineralized split core samples.
2.
Intersection interval is
composited above a cut-off grade of 0.05% U
3
O
8
unless otherwise
indicated.
3.
Intersection interval is
composited above a cut-off grade of 1.0% U
3
O
8
.
4.
Composites are compiled using
1.0 metre minimum ore thickness and 2.0 metres maximum
waste.
5.
As the drill holes are
oriented steeply toward the south-southeast and the mineralized
lenses are interpreted to dip moderately to the north, the true
thickness of mineralization is expected to be approximately 75% of
the intersection lengths.
6.
Due to core loss, the
interval is reported as radiometric equivalent U
3
O
8
(“eU
3
O
8
”) derived
from a calibrated total gamma downhole probe.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Mineral Resource Estimate for the Huskie Deposit
During the third
quarter, upon completion of the summer 2018 drilling program,
Denison completed a maiden mineral resource estimate for the Huskie
basement-hosted uranium deposit, which was reviewed and audited by
SRK in accordance with NI 43-101 and CIM Definitions (2014). Since
its discovery in 2017, Denison has completed 28 drill holes at
Huskie at a spacing of approximately 50 metres x 50 metres to
define the deposit
over a strike
length of approximately 210 metres and dip length of up to 215
metres. The deposit has been interpreted to include three parallel,
stacked lenses of mineralization (Huskie 1, Huskie 2 and Huskie 3)
which vary in interpreted true thickness between approximately one
and seven metres
. The result of the 2017 and 2018 drilling
campaigns at Huskie is an inferred mineral resource estimate of 5.7
million pounds of U
3
O
8
(above a cut-off
grade of 0.1% U
3
O
8
) based on 268,000
tonnes of mineralization at an average grade of 0.96% U
3
O
8
.
The mineral
resource estimate, with an effective date of October 17, 2018, is
fully disclosed in Denison’s third quarter MD&A and in
the technical report titled “Technical Report with an Updated
Mineral Resource Estimate for the Waterbury Lake Property, Northern
Saskatchewan, Canada”. The technical report has an effective
date of December 21, 2018 and is available under Denison's profile
on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml,
and on Denison's website. The report was authored by NI 43-101
Qualified Persons from Denison, SRK, SGS Geostat and GeoVector
Management Inc.
The audited
mineral resource statement for the Huskie deposit, and the combined
estimated mineral resources for the Waterbury Lake project, with an
effective date of October 17, 2018, is provided in the table
below.
COMBINED MINERAL RESOURCES FOR THE WATERBURY LAKE
PROJECT
DATED OCTOBER 17, 2018
|
Deposit
|
Category
|
Zone
|
Tonnes
|
Grade
(% U
3
O
8
)
|
lbs U
3
O
8
(100% Basis)
|
Denison Share
|
(lbs U
3
O
8
)
|
J
Zone
|
Indicated
|
Unconformity
|
291,000
|
2.00
|
12,810,000
|
8,444,352
|
Huskie
|
Inferred
|
Basement
- Huskie 1
|
81,455
|
0.34
|
612,417
|
403,705
|
Basement
- Huskie 2
|
178,303
|
1.28
|
5,047,356
|
3,327,217
|
Basement
- Huskie 3
|
8,294
|
0.15
|
27,136
|
17,888
|
|
Total Indicated
|
291,000
|
2.00
|
12,810,000
|
8,444,352
|
|
Total Inferred
|
268,053
|
0.96
|
5,686,909
|
3,748,810
|
1.
Mineral
resources are not mineral reserves and have not demonstrated
economic viability. Mineral resources are reported at a cut-off
grade of 0.1% U
3
O
8
and at a
long-term uranium price of USD$45 per pound.
2.
Denison’s
share of the Waterbury Lake project as at December 31, 2018 is
65.92%.
3.
The
mineral resource estimate for the J Zone deposit is unchanged from
the September 6, 2013 estimate as detailed in the NI 43-101
technical report entitled “Mineral Resource Estimate on the J
Zone Uranium Deposit, Waterbury Lake Property, dated September 6,
2013, by Allan Armitage, Ph.D., P.Geo, and Alan Sexton, M.Sc.,
P.Geo of GeoVector Management Inc.”
|
Regional Exploration Drilling
A total of four
holes were completed during the summer 2018 program on regional
targets at Waterbury lake approximately 2.5 to 3.0 kilometres to
the northeast of the Huskie zone, where the regionally interpreted
Midwest structure is projected to intersect the geologically
favourable GB and Oban trends.
The regional
exploration drilling was highlighted by two drill holes along the
GB trend, completed approximately 100 metres apart on a north-south
fence, which both intersected basement-hosted uranium
mineralization, as provided in the table below. The mineralization
occurred as structurally-controlled disseminations of uraninite
(pitchblende) associated with massive clay replacement. The
mineralization is contained within a 60 to 80 metre wide package of
highly structured and strongly altered graphitic basement
rocks.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
HIGHLIGHTS OF ASSAY RESULTS FOR 2018 REGIONAL DRILL
HOLES
|
Hole Number
2
|
From
(m)
|
To
(m)
|
Length
3
(m)
|
Grade
(% U
3
O
8
)
1
|
WAT18-478
|
262.5
|
263.5
|
1
|
0.43
|
WAT18-479
|
372.0
|
372.5
|
0.5
|
0.20
|
and
|
410.5
|
411.0
|
0.5
|
0.45
|
and
|
420.0
|
420.5
|
0.5
|
0.31
|
1.
U
3
O
8
is the chemical
assay of mineralized split core samples.
2.
Drill hole WAT18-478 and
WAT18-479 were drilled on an azimuth of 0 degrees with dips of -72
degrees and -74 degrees, respectively.
3.
True thickness of the
mineralization is estimated at approximately 70% of the
intersection lengths.
Midwest Extension DCIP Resistivity Survey
The
Company’s geological interpretation suggests the Midwest
structure, which hosts the Midwest Main and Midwest A deposits on
the Midwest property (25.17% Denison owned), may extend onto the
Waterbury Lake property to the southwest of the Midwest Main
deposit. A 2D DCIP resistivity survey comprising 28.8 kilometres
(16 lines) was designed to map the possible extension of the
Midwest structure on to the Waterbury Lake property and to define
possible drill targets for future testing. The survey was completed
during October 2018 and the data processed during the fourth
quarter of 2018 – resulting in the identification of
additional drill targets.
Hook-Carter
The Hook-Carter
property consists of 80 claims covering 24,229 hectares and is
located in the western portion of the Athabasca Basin. The project
is highlighted by 15 kilometres of strike potential along the
prolific Patterson Corridor – host to the Arrow deposit
(NexGen Energy Ltd.), Triple R deposit (Fission Uranium Corp.), and
Spitfire discovery (Purepoint Uranium Group Inc., Cameco, and Orano
Canada), which occur within 8 to 20 kilometres of the
property. The property is significantly underexplored
compared to other properties along this trend, with only five of
eight historic drill holes located along the 15 kilometres of
Patterson Corridor strike length. The property also covers
significant portions of the Derkson and Carter Corridors, which
provide additional target areas. During 2018, an additional 3,707
hectares (35 claims) were acquired by staking and acquisition,
which extended the prospective strike length of the Derksen
Corridor up to 17 kilometres.
The property is
owned 80% by Denison and 20% by ALX Uranium Corp.
(‘ALX’). Denison has agreed to fund ALX's share of the
first CAD$12M in expenditures (see Denison’s Press Releases
dated October 13 and November 7, 2016). Total exploration costs
incurred in 2018 were $2,818,000 (2017 – $2,063,000). As at
December 31, 2018, the Company has spent $4,926,000 on the project
since entering into the agreement with ALX.
As part of its
ongoing reconnaissance exploration at Hook-Carter, Denison
completed a winter and summer diamond drilling program during 2018
totalling 6,960 metres in nine holes. The 2018 drilling programs
were designed to test an initial set of geophysical targets on a
regional scale along 7.5 kilometres of the 15 kilometres of
Patterson Corridor strike length at Hook-Carter. The nine holes
completed successfully identified multiple prospective trends with
geological features commonly associated with Athabasca Basin
uranium deposits, including hydrothermal alteration in both the
sandstone and the basement lithologies associated with graphitic
basement structures.
South Dufferin
The South
Dufferin project is a 100% Denison owned property comprising 15,698
hectares in 7 claims and is located immediately south of the
southern margin of the Athabasca Basin in northern Saskatchewan.
The property covers the southern extension of the Virgin River
Shear Zone, which hosts known high-grade uranium mineralization at
Cameco’s Dufferin Lake zone approximately 13 kilometres to
the north (highlight of 1.73% U
3
O
8
over 6.5 metres)
and Cameco’s Centennial deposit approximately 25 kilometres
to the north (includes intersections up to 8.78% U
3
O
8
over 33.9
metres). The historical drill results are available on the
Saskatchewan Mineral Assessment Database (SMAD) on the Government
of Saskatchewan website. Exploration potential exists for
basement-hosted uranium mineralization associated with the Dufferin
Lake fault and parallel faults within the Virgin Lake Shear zone. A
summer 2018 diamond drilling program was completed in mid-July
2018, which included 1,331 metres of diamond drilling in nine
holes. The reconnaissance program was designed to test targets
developed across the property from recent soil geochemical and
ground electromagnetic surveys. The drill holes successfully
intersected graphitic rocks, often associated with faulting,
however, no radioactivity was encountered and only minor
hydrothermal alteration was noted in two of the holes.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Non-Operated Properties
During 2018,
Orano Canada completed exploration programs on the Midwest and
McClean Lake joint venture properties.
Midwest
The Midwest
Project is a joint venture owned 25.17% by Denison, 69.16% by Orano
Canada, and 5.67% by OURD (Canada) Ltd, with Orano Canada as the
project operator. The project is host to the high-grade Midwest
Main and Midwest A uranium deposits which lie along strike and
within six kilometres of the J Zone deposit and Huskie
discovery
on
Denison’s 65.92% owned Waterbury Lake project. Collectively,
the Midwest and Waterbury deposits occur within close proximity to
existing uranium mining and milling infrastructure –
including provincial highways, powerlines, and Denison’s
22.5% owned McClean Lake mill. Total exploration costs incurred
during 2018 were $1,251,000 (2017 - $nil) and Denison’s share
of the exploration costs during 2018 was $315,000 (2017 -
$nil).
Winter 2018 Drilling Program
The winter 2018
drill program comprised 4,709 metres in 12 completed diamond drill
holes. Drilling was conducted on
the Points North
conductor (6 drill holes, 2,269 metres) to test exploration
targets, and at Midwest Main (6 drill holes, 2,440 metres) to
collect additional information from the unconformity-hosted
mineralized zone and to test underlying basement targets. The
drilling validated mineralization at the Midwest Main deposit
(based on preliminary radiometric equivalent uranium results), but
did not intersect any high-grade mineralization on the Points North
conductor, or below
the Midwest Main
deposit within the basement.
Updated Mineral Resource Estimate
On March 27,
2018, Denison reported an updated mineral resource estimate for the
Midwest Main and Midwest A deposits located on the Midwest
property. Inferred mineral resources increased by 13.5 million
pounds of U
3
O
8
and currently
total 18.2 million pounds of U
3
O
8
(846,000 tonnes
at 0.98% U
3
O
8
) above a cut-off
grade of 0.1% U
3
O
8
. Indicated
mineral resources increased by 2.1 million pounds of U
3
O
8
and currently
total 50.7 million pounds of U
3
O
8
(1,019,000 tonnes
at 2.3% U
3
O
8
) above a cut-off
grade of 0.1% U
3
O
8
.
The updated
mineral resource estimates were based on extensive work undertaken
by Orano Canada to upgrade the project database, improve the
geological models and estimate mineral resources using industry
best-practice estimation procedures for high-grade Athabasca
uranium deposits, in accordance with NI 43-101. This work
included,
but was not limited to;
verification of grade data against historical records (Midwest Main
and Midwest A), digitization of historical downhole gamma probe
paper logs (Midwest Main), depth correction of downhole gamma probe
data (Midwest Main and Midwest A), creation of new probe to grade
correlations (Midwest Main and Midwest A), collection and analysis
of samples for dry bulk density and derivation of a new grade to
density regression formula (Midwest A), revised geological
modelling based on the digitization and generalization of drill log
descriptions and re-interpretation of geophysical surveys (Midwest
Main and Midwest A), and incorporation of drill holes completed
between September 2007 and December 2009 (Midwest A). The mineral
resource estimates were reviewed and audited by SRK on behalf of
Denison. An updated independent Technical Report was filed on SEDAR
(www.sedar.com) concurrent with Denison’s press release dated
March 27, 2018. The audited mineral resource statement prepared by
SRK, with an effective date of March 9, 2018, is provided in the
table below.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
AUDITED MINERAL RESOURCE STATEMENT, MIDWEST PROJECT,
SASKATCHEWAN,
SRK CONSULTING (CANADA) INC., MARCH 9, 2018
|
Deposit
|
Category
|
Zone
|
Tonnes
|
Grade(% U
3
O
8
)
|
Million lbs U
3
O
8
(100% Basis)
|
Million lbs U
3
O
8
(Denison Share
2
)
|
Midwest
Main
|
Indicated
|
Unconformity
|
453,000
|
4.00
|
39.94
|
10.05
|
Inferred
|
Unconformity
|
257,000
|
1.36
|
7.71
|
1.94
|
Perched
|
513,000
|
0.32
|
3.59
|
0.90
|
Basement
|
23,000
|
0.38
|
0.18
|
0.05
|
Midwest
A
|
Indicated
|
Low
Grade
|
566,000
|
0.87
|
10.84
|
2.73
|
Inferred
|
Low
Grade
|
43,000
|
0.40
|
0.38
|
0.09
|
High
Grade
|
10,000
|
28.76
|
6.35
|
1.60
|
|
Total
Indicated
|
1,019,000
|
2.26
|
50.78
|
12.78
|
|
Total
Inferred
|
845,000
|
0.98
|
18.21
|
4.58
|
1.
Mineral resources are not
mineral reserves and have not demonstrated economic viability. All
figures have been rounded to reflect the relative accuracy of the
estimates. Reported at open pit resource cut-off grade of 0.1%
U
3
O
8
(0.085% U) and at
a uranium price of USD$45 per pound.
2.
Based on Denison’s
25.17% ownership of the project.
McClean Lake
The McClean Lake
project is a joint venture owned 22.5% by Denison, 70.0% by Orano
Canada, and 7.5% by OURD (Canada) Ltd, with Orano Canada as the
project operator. The project hosts the McClean mill in addition to
unmined uranium deposits including Caribou, Sue D, Sue E and the
McClean North pods. Total exploration costs incurred during 2018
were $1,317,000 (2017 - $1,048,000) and Denison’s share of
the exploration costs during 2018 was $296,000 (2017 -
$236,000).
A DCIP
resistivity survey, comprising six lines (30 kilometres), was
completed in August 2018 to define basement targets primarily along
the Tent-Seal Fault which is known to host uranium mineralization.
A follow-up diamond drilling program, comprising 2,565 metres in
nine holes was completed in November 2018. No significant
mineralization was intersected during the program.
GENERAL AND ADMINISTRATIVE EXPENSES
Total general and
administrative expenses were $7,189,000 during 2018 (2017 -
$7,680,000). These costs are mainly comprised of head office
salaries and benefits, office costs in multiple regions, audit and
regulatory costs, legal fees, investor relations expenses, project
costs, and all other costs related to operating a public company
with listings in Canada and the United States. The decrease in
general and administrative expenses during 2018 was predominantly
the result of $1,534,000 in non-recurring project costs associated
with the APG Arrangement that occurred in 2017. There were no
similar significant project costs incurred in 2018. The decrease in
project-related costs was partially offset by an increase in
stock-based compensation expense.
IMPAIRMENT – MINERAL PROPERTIES
During 2018, the
Company recognized an impairment expense of $6,086,000, due to the
Company’s current intention to let claims on three of its
Canadian properties lapse in the normal course. During 2017, the
Company recorded an impairment reversal of $331,000, related to
Moore Lake, based on an update to the estimated recoverable amount
remaining to be received under an option agreement with Skyharbour
Resources Ltd.
OTHER INCOME AND EXPENSES
During 2018, the
Company recognized a loss of $5,865,000 in other income/expense
(2017 – gain of $1,995,000). The loss in 2018 is
predominantly due to losses on investments carried at fair value of
$5,411,000 (2017 – gains of $2,417,000). Gains and losses on
investments carried at fair value are driven by the closing share
price of the related investee at end of the quarter. The loss
recorded in 2018 was mainly due to unfavourable mark-to-market
adjustments on the Company’s investments in common share
purchase warrants of GoviEx Uranium Inc. (‘GoviEx’) and
common shares of Skyharbour Resources Ltd. (2017 – favourable
mark-to-market adjustments on the Company’s investments in
GoviEx common share purchase warrants and the common shares of
Skyharbour).
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
During the first
quarter of 2017, the Company also recorded a gain of $899,000
related to the extinguishment of the off-market toll milling
contract liability related to the CLJV toll milling arrangement.
This liability was extinguished as a result of the Company entering
into the APG Arrangement, whereby all revenues under the contract
have been monetized. No similar transaction occurred in
2018.
During 2017, a
foreign exchange loss of $853,000 was recognized. The loss during
2017 was due primarily to unfavourable fluctuations in foreign
exchange rates impacting the revaluation of intercompany advances
and debt. These intercompany balances were impaired in 2018, and as
a result, the Company recognized negligible foreign exchange losses
in the current year.
EQUITY SHARE OF INCOME FROM ASSOCIATES
During 2018, the
Company recognized a gain of $277,000 from its equity share of its
associate GoviEx (2017 – loss of $706,000). The gain in 2018
is due to an equity loss of $472,000 (2017 – equity loss of
$1,015,000), based on the Company’s share of GoviEx’s
net loss during the period, offset by a net dilution gain of
$749,000 (2017 – dilution gain of $309,000) as a result of
equity issuances completed by GoviEx, which reduced the
Company’s ownership position in GoviEx from 20.68% at
December 31, 2016, to 18.72% at December 31, 2017, and to
approximately 16.21% at December 31, 2018. The Company records its
share of income from associates a quarter in arrears, based on the
most recent publicly available financial information, adjusted for
any subsequent material publicly disclosed share issuance
transactions that have occurred.
INCOME TAX RECOVERY AND EXPENSE
During 2018, the
Company recorded an income tax recovery of $8,294,000 (2017 -
$5,166,000). The increase in the income tax recovery in 2018 was
due, in part, to the renunciation of tax attributes relating to
flow through share issuances. The Company’s accounting policy
for flow through shares results in the recognition of previously
unrecognized tax assets upon the renunciation of tax attributes to
investors in the year following the issuance of the flow through
shares. The flow through share offering in 2017, renounced in 2018,
was larger than the Company’s 2016 flow through offering,
renounced in 2017, resulting in a larger deferred tax recovery in
2018. In addition, the increase in the tax recovery in 2018 was due
to a reduction in taxable temporary differences related to
property, plant and equipment, and an increase in deductible
temporary differences related to both reclamation obligations and
the APG arrangement.
During 2017, the
Company recorded a loss on disposal of $109,000, due to additional
transaction costs incurred for professional services related to
sale of the African Mining Division to GoviEx in June
2016.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash
equivalents were $23,207,000 at December 31, 2018 (December 31,
2017 – $3,636,000). At December 31, 2018, the company
held no investments in GICs categorized as short term investments
on the consolidated statement of financial position (December 31,
2017 - $37,807,000).
The increase in
cash and cash equivalents of $19,571,000 was due to net cash
provided by investing activities of $35,973,000 and net cash
provided by financing activities of $4,549,000, partially offset by
net cash used in operations of $20,951,000.
Net cash used in
operating activities of $20,951,000 during 2018, was predominantly
due to the net loss for the period, adjusted for non-cash items and
changes in working capital items.
Net cash provided
by investing activities of $35,973,000 consists primarily of the
sale of GICs for $37,500,000.
Net cash provided
by financing activities of $4,549,000 reflects the net proceeds
received from the Company’s November 2018 private placement
issuance of 4,950,495 flow through common shares at a price of
$1.01, for gross proceeds of $5,000,000. The proceeds of the share
offerings will be used to fund the Company’s Athabasca Basin
exploration programs through to the end of 2019.
As at December
31, 2018, the Company has fulfilled its obligation to spend
$14,499,790 on eligible Canadian exploration expenditures as a
result of the issuance of the Tranche A and Tranche B flow-through
shares in March 2017.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
As at December
31, 2018, the Company has spent $253,000 towards its obligation to
spend $5,000,000 on eligible Canadian exploration expenditures
under the flow-through share financing completed in November
2018.
Refer to 2019
OUTLOOK below for details of the Company’s working capital
requirements for the next twelve months.
Revolving Term Credit Facility
On January 29,
2019, the Company entered into an agreement with the Bank of Nova
Scotia (‘BNS’) to extend the maturity date of the
Company’s credit facility to January 31, 2020 (‘2019
Credit Facility’). Under the 2019 Credit Facility, the
Company continues to have access to letters of credit of up to
$24,000,000, which is fully utilized for non-financial letters of
credit in support of reclamation obligations. All other terms of
the 2019 Credit Facility (tangible net worth covenant, pledged
cash, investments amount and security for the facility) remain
unchanged by the amendment – including a requirement to
provide $9,000,000 in cash collateral on deposit with BNS to
maintain the 2019 Credit Facility.
Contractual Obligations and Contingencies
The Company has
the following contractual obligations at December 31,
2018:
|
|
|
|
|
|
|
|
|
|
After
|
(in
thousands)
|
|
Total
|
|
1
Year
|
|
2-3
Years
|
|
4-5
Years
|
|
5
Years
|
Operating Leases
and
other
commitments
|
$
|
1,259
|
$
|
319
|
$
|
517
|
$
|
229
|
$
|
194
|
Reclamation Sites
The Company
periodically reviews the anticipated costs of decommissioning and
reclaiming its mill and mine sites as part of its environmental
planning process. The Company’s reclamation liability, at
December 31, 2018, is estimated to be $30,064,000, which is
expected to be sufficient to cover the projected future costs for
reclamation of the Company’s mill and mine operations. There
can be no assurance, however, that the ultimate cost of such
reclamation obligations will not exceed the estimated liability
contained in the Company’s financial statements.
Elliot Lake
–
The Elliot Lake uranium mine
was closed in 1992 and capital works to decommission the site were
completed in 1997. The remaining provision is for the estimated
cost of monitoring the Tailings Management Areas at the Denison and
Stanrock sites and for treatment of water discharged from these
areas. The Company conducts its activities at both sites pursuant
to licenses issued by the Canadian Nuclear Safety Commission
(‘CNSC’). In the fourth quarter of 2018, an adjustment
of $369,000 was made to increase the reclamation liability to
reflect the Company’s best estimate of the present value of
the total reclamation cost that will be required in the future.
Spending on restoration activities at the Elliot Lake sites is
funded from monies in the Elliot Lake reclamation trust fund. At
December 31, 2018, the amount of restricted cash and investments
relating to the Elliot Lake reclamation trust fund was
$3,120,000.
McClean Lake and Midwest
–
The McClean Lake
and Midwest operations are subject to environmental regulations as
set out by the Saskatchewan government and the CNSC. Cost estimates
of future decommissioning and reclamation activities are prepared
every 5 years and filed with the applicable regulatory authorities
for approval. The most recent approved reclamation plan is dated
March 2016 and the Company’s best estimate of its share of
the present value of the total reclamation liability is derived
from this plan. In the fourth quarter of 2018, the Company
increased the liability by $625,000 to reflect changes in the
expected timing of reclamation activities and the long-term
discount rate used to estimate the present value of the reclamation
liability. The majority of the reclamation costs are expected to be
incurred between 2036 and 2054.
Under the
Mineral Industry Environmental
Protection Regulations, 1996
, the Company is required to
provide its pro-rata share of financial assurances to the Province
of Saskatchewan. Under the March 2016 approved plan, the Company
increased its financial assurance to $24,135,000, providing
irrevocable standby letters of credit from BNS in favour of
Saskatchewan’s Ministry of Environment. At present, to
provide the required standby letters of credit, the Company is
utilizing the full capacity of the 2019 Credit Facility and has
committed an additional $135,000 with BNS as restricted cash
collateral.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
FINANCIAL INSTRUMENTS
|
|
Financial
|
|
Fair
|
|
December
31,
|
|
December
31,
|
|
|
Instrument
|
|
Value
|
|
2018
|
|
2017
|
(in
thousands)
|
|
Category
(1)
|
|
Hierarchy
|
|
Fair
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
Cash and
equivalents
|
|
Category
B
|
|
|
$
|
23,207
|
$
|
3,636
|
Trade and
other receivables
|
|
Category
B
|
|
|
|
4,072
|
|
4,791
|
Investments
|
|
|
|
|
|
|
|
|
Debt
instruments (GIC’s)
|
|
Category
A
|
|
Level
2
|
|
-
|
|
37,807
|
Equity
instruments (shares)
|
|
Category
A
|
|
Level
1
|
|
2,007
|
|
2,833
|
Equity
instruments (warrants)
|
|
Category
A
|
|
Level
2
|
|
248
|
|
4,526
|
Restricted
cash and equivalents
|
|
|
|
|
|
|
|
|
Elliot Lake
reclamation trust fund
Credit
facility pledged assets
Reclamation
letter of credit collateral
|
|
Category
B
Category
B
Category
B
|
|
|
|
3,120
9,000
135
|
|
3,049
9,000
135
|
|
|
|
|
|
$
|
41,789
|
$
|
65,777
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
Account
payable and accrued liabilities
|
|
Category
C
|
|
|
|
5,554
|
|
5,756
|
Debt
obligations
|
|
Category
C
|
|
|
|
-
|
|
-
|
|
|
|
|
|
$
|
5,554
|
$
|
5,756
|
Notes:
1.
Financial instrument
designations are as follows: Category A=Financial assets and
liabilities at fair value through profit and loss; Category
B=Financial assets at amortized cost; Category C=Financial
liabilities at amortized cost.
The Company is
exposed to credit risk and liquidity risk in relation to its
financial instruments. Its credit risk in relation to its cash and
cash equivalents, debt instruments and restricted cash and cash
equivalents is limited by dealing with credit worthy financial
institutions. The Company’s trade and other receivables
balance relates to a small number of customers who are considered
credit worthy and with whom the Company has established a
relationship through its past dealings.
Liquidity risk,
in which the Company may encounter difficulties in meeting
obligations associated with its financial liabilities as they
become due, is managed through the Company’s planning and
budgeting process which determines the funds required to support
the Company’s normal operating requirements on an ongoing
basis. The Company ensures that there is sufficient committed
capital to meet its short-term business requirements, taking into
account its anticipated cash flows from operations, its holdings of
cash and equivalents and debt instruments and its access to credit
facilities and capital markets, if required.
The Company's
investments that are designated as financial assets at fair value
through profit or loss have resulted in other expense of $5,411,000
during 2018 (2017 – other income of $2,417,000). See OTHER
INCOME AND EXPENSES above for further details.
TRANSACTIONS WITH RELATED PARTIES
Uranium Participation Corporation
The Company is a
party to a management services agreement with UPC, which was
renewed in 2016 with an effective date of April 1, 2016 and a term
of three years. Under the current agreement, Denison receives the
following fees from UPC: a) a base fee of $400,000 per annum,
payable in equal quarterly installments; b) a variable fee equal to
(i) 0.3% per annum of UPC’s total assets in excess of $100
million and up to and including $500 million, and (ii) 0.2% per
annum of UPC’s total assets in excess of $500 million; c) a
fee, at the discretion of the Board, for on-going monitoring or
work associated with a transaction or arrangement (other than a
financing, or the acquisition of or sale of U
3
O
8
or UF
6
); and d) a
commission of 1.0% of the gross value of any purchases or sales of
U
3
O
8
or UF
6
or gross interest
fees payable to UPC in connection with any uranium loan
arrangements.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
The following
amounts were earned from UPC for the years ended:
|
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Management Fee
Revenue
|
|
|
|
|
|
|
|
|
Base and variable
fees
|
|
|
|
|
$
|
1,739
|
$
|
1,438
|
Discretionary
fees
|
|
|
|
|
|
50
|
|
-
|
Commission
fees
|
|
|
|
|
|
224
|
|
368
|
|
|
|
|
|
$
|
2,013
|
$
|
1,806
|
At December 31,
2018, accounts receivable includes $303,000 (December 31, 2017
– $481,000) due from UPC with respect to the fees and
transactions discussed above.
Korea Electric Power Corporation (‘KEPCO’) and
KHNP
In connection
with KEPCO’s investment in Denison in June 2009, KEPCO and
Denison were parties to a strategic relationship agreement. In
December 2016, Denison was notified that KEPCO’s indirect
ownership of Denison’s shares had been transferred from an
affiliate of KEPCO to an affiliate of KEPCO’s wholly-owned
subsidiary, KHNP. In September 2017, Denison and KHNP’s
affiliate, KHNP Canada Energy Ltd. (‘KHNP Canada’)
entered into an amended and restated strategic relationship
agreement, in large part providing KHNP Canada with the same rights
as those previously given to KEPCO under the prior agreement,
including entitling KHNP Canada to: (a) subscribe for additional
common shares in Denison’s future public equity offerings;
(b) a right of first opportunity if Denison intends to sell any of
its substantial assets; (c) a right to participate in certain
purchases of substantial assets which Denison proposes to acquire;
and (d) a right to nominate one director to Denison’s board
so long as its share interest in Denison is above
5.0%.
As at December
31, 2018, KHNP, through its subsidiaries, holds 58,284,000 shares
of Denison representing a share interest of approximately 9.89%.
KHNP Canada is the holder of the majority of these Denison
shares.
KHNP Canada is
also the majority member of the KWULP. KWULP is a consortium of
investors that holds the non-Denison owned interests in Waterbury
Lake Uranium Corporation (“WLUC”) and Waterbury Lake
Uranium Limited Partnership (“WLULP”), entities whose
key asset is the Waterbury Lake property. At December 31, 2018,
WLUC was owned by Denison (60%) and KWULP (40%) and the partnership
interests in WLULP were Denison (65.92%), KWULP (34.06%) and WLUC,
as general partner (0.02%). When a spending program is approved,
each of Denison and KWULP is required to fund WLUC and KWULP based
upon its respective ownership interests or be diluted accordingly.
Generally, spending program approval requires 75% of the limited
partners’ voting interest.
In January 2014,
Denison agreed to allow KWULP to defer a decision regarding its
funding obligation to WLUC and WLULP until September 30, 2015 and
to not be immediately diluted as per the dilution provisions in the
relevant agreements (“Dilution Agreement”). Instead,
under the Dilution Agreement, dilution would be delayed until
September 30, 2015 and then applied in each subsequent period, if
applicable, in accordance with the original agreements. In
exchange, Denison received authorization to approve spending
programs on the property, up to an aggregate $10,000,000, until
September 30, 2016 without obtaining approval from 75% of the
voting interest. Under subsequent amendments, Denison and KWULP
have agreed to extend Denison’s authorization under the
Dilution Agreement to approve program spending up to an aggregate
$15,000,000 until December 31, 2019.
In 2017, Denison
funded 100% of the approved fiscal 2017 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 63.01% to
64.22%, in two steps, which has been accounted for using effective
dates of May 31, 2017 and August 31, 2017. The increased ownership
interest resulted in Denison recording its increased pro-rata share
of the net assets of Waterbury Lake, the majority of which relates
to an addition to mineral property assets of $779,000
In 2018, Denison
funded 100% of the approved fiscal 2018 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 64.22% to
65.92%, in two steps, which has been accounted for using effective
dates of May 31, 2018 and October 31, 2018. The increased ownership
interest resulted in Denison recording its increased pro-rata share
of the net assets of Waterbury Lake, the majority of which relates
to an addition to mineral property assets of
$1,141,000.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Other
All services and
transactions with the following related parties listed below were
made on terms equivalent to those that prevail with arm’s
length transactions:
●
On December 12, 2018, the
Company lent $250,000 to GoviEx pursuant to a credit agreement
between the parties. The loan is unsecured, bears interest at 7.5%
per annum and is payable on demand at any time that is 60 days
after the lending date.
●
During 2018, the Company
incurred investor relations, administrative service fees and other
expenses of $209,000 (2017 – $186,000) with Namdo Management
Services Ltd, which shares a common director with Denison. These
services were incurred in the normal course of operating a public
company. At December 31, 2018, an amount of $nil (December 31, 2017
– $nil) was due to this company.
●
During 2018, the Company
incurred office expenses of $81,000 (2017 - $60,000) with Lundin
S.A, a company which provides office and administration services to
the former executive chairman, other directors and management of
Denison. The agreement for the office and administration services
was terminated effective September 30, 2018. At December 31, 2018,
an amount of $nil (December 31, 2017 – $nil) was due to this
company.
COMPENSATION OF KEY MANAGEMENT PERSONNEL
Key management
personnel are those persons having authority and responsibility for
planning, directing and controlling the activities of the Company,
directly or indirectly. Key management personnel include the
Company’s executive officers, vice-presidents and members of
its Board of Directors.
The following
compensation was awarded to key management personnel:
|
|
|
|
|
|
Year
Ended
December
31,
|
|
Year
Ended
December
31,
|
(in
thousands)
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Salaries and
short-term employee benefits
|
|
|
|
|
$
|
(1,759)
|
$
|
(1,670)
|
Share-based
compensation
|
|
|
|
|
|
(1,522)
|
|
(1,104)
|
|
|
|
|
|
$
|
(3,281)
|
$
|
(2,774)
|
The increase in
key management compensation is predominantly driven by an increase
in stock-based compensation relating to the cost of awards issued
to key management personnel during the year under the
Company’s new share unit plan.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does
not have any off-balance sheet arrangements.
SUBSEQUENT EVENTS
Bank of Nova Scotia Credit Facility Renewal
On January 29,
2019, the Company entered into an agreement with the BNS to extend
the maturity date of the 2018 facility. Under the 2019 Credit
Facility, the maturity date has been extended to January 31,
2020 and the Company continues to have access to credit up to
$24,000,000 whose use is restricted to non-financial letters of
credit in support of reclamation obligations. All other terms of
the 2019 Credit Facility (tangible net worth covenant, pledged
cash, investments amount and security for the facility) remain
unchanged from those of the 2018 facility.
The 2019 Credit
Facility is subject to letter of credit and standby fees of 2.40%
(0.40% on the first $9,000,000) and 0.75%
respectively.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
OUTSTANDING SHARE DATA
At March 7, 2019,
there were 589,128,908 common shares issued and outstanding, stock
options outstanding for 13,004,193 Denison common shares, 3,400,432
share units, which will be converted to Denison common shares when
they vest, and 1,673,077 share purchase warrants outstanding for a
total of 607,206,610 common shares on a fully-diluted
basis.
On March 8, 2018,
the Board approved the adoption of the fixed number share unit plan
(the ‘Share Unit Plan’), providing for the issuance
from treasury of up to 15,000,000 common shares on settlement of
share units issued thereunder, and the grant of an aggregate of
2,200,000 performance share units (‘PSUs’) and
1,299,432 restricted share units (‘RSUs’) under the
Share Unit Plan. Shareholder approval was obtained for the Share
Unit Plan as well as the initial grants thereunder at the Annual
General and Special Meeting of Shareholders held on May 3, 2018.
For accounting purposes, the share units were regarded as granted
upon receipt of shareholder approval.
Denison’s
plans for 2019 continue to focus on the activities necessary to
position the Company as the next uranium producer in Canada.
Accordingly, the 2019 budget is focused on the advancement of
Wheeler River through the EA process and the necessary de-risking
ahead of the completion of a feasibility study.
(‘000)
|
|
2019 BUDGET
(2)
|
|
Canada Mining Segment
|
|
|
|
Mineral
Sales
|
|
970
|
|
Development &
Operations
|
|
(3,640)
|
|
Mineral Property
Exploration & Evaluation
|
|
(12,350)
|
|
|
|
(15,020)
|
|
DES Segment
|
|
|
|
DES Environmental
Services
|
|
1,520
|
|
|
|
1,520
|
|
Corporate and Other Segment
|
|
|
|
UPC Management
Services
|
|
1,920
|
|
Corporate
Administration & Other
|
|
(5,170)
|
|
|
|
(3,250)
|
|
Total
(1)
|
|
$ (16,750)
|
|
Notes:
1.
Only material operations
shown.
2.
The budget is prepared on a
cash basis.
Mineral Sales
Denison’s
revenue from the sale of approximately 26,000 pounds of
U
3
O
8
currently held in
inventory, is budgeted to be $1.0 million.
Development & Operations
In 2019,
Denison’s share of operating and capital expenditures at the
Orano Canada operated McClean Lake and Midwest joint ventures are
budgeted to be $2.6 million. The large majority of the operating
expenditures relate to McClean, including $2.3 million in respect
of Denison’s share of the 2019 budget for the advancement of
the SABRE mining method. The 2019 SABRE program includes the
engineering and fabrication of the mining equipment and pipe to be
used during the test mining process. In order to accommodate the
time required to complete this process, the test mining activities
originally planned by Orano Canada for 2019 have been delayed until
2020.
The 2019
operating expenditures are also expected to include $800,000 for
reclamation expenditures related to Denison’s legacy mine
sites in Elliot Lake.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Mineral Property Exploration & Evaluation
The budget for
exploration and evaluation activities in 2019 is approximately
$12.4 million (Denison’s share). Including partner’s
share of expenses, the projected 2019 exploration and evaluation
work program is budgeted to be $13.4 million. The exploration
program is expected to include approximately 25,000 metres of
drilling across three of Denison’s high priority projects,
namely Wheeler River, Waterbury Lake and Hook-Carter. The majority
of the exploration activity will occur during the winter months,
resulting in higher levels of expenditures in the first quarter of
2019. See Denison’s press release dated January 9, 2019 for
further details regarding the 2019 exploration
program.
Evaluation
activities are expected to continue at Wheeler River throughout the
year.
Wheeler River
A $10.3 million
budget (100% basis) has been approved for Wheeler River. The budget
includes exploration expenditures of $3.2 million and evaluation
expenditures of $7.1 million. Denison’s share of the budget
is expected to be $9.3 million, consistent with the Company’s
90% ownership interest.
Evaluation
The 2019
evaluation program includes the initiation of the EA process, as
well as engineering studies and related programs required to
advance the high-grade Phoenix deposit as an ISR mining operation.
Engineering studies during 2019 will include ISR wellfield testing,
the initiation of metallurgical ISR pilot plant testing, Gryphon
optimization studies, and third party reviews of the Phoenix
engineering plans. In addition, following the submission of a PD in
February 2019 to the Federal and Provincial regulatory authorities,
the multi-year EA, consultation, and permitting process for the
project has been initiated and activities in 2019 will support
progress on the EA.
Exploration
Following the
completion of the PFS in the third quarter of 2018, and given the
highly encouraging results from the proposed Phoenix ISR operation,
the planned 2019 exploration drilling program will be focused on
initial testing of regional targets at the sub-Athabasca
unconformity, with the potential to discover additional ISR
amenable uranium deposits. Potential for basement hosted uranium
mineralization will not be ignored where opportunities also exist
to evaluate prospective basement targets. High priority regional
target areas planned for testing in 2019 include K West, M Zone, K
South, Gryphon South, Q South (East), and O Zone.
The 2019 Wheeler
River exploration budget totals $3.2 million (100% basis) and
includes approximately 13,500 metres of diamond drilling in 23
holes. Drilling activities commenced early January 2019 for the
winter season, which will be followed by a results-driven summer
drilling program – providing a staged-approach to target
evaluation.
Exploration Pipeline Properties
Denison remains
active on high potential exploration pipeline projects – each
assessed to have the potential to deliver a meaningful discovery of
new uranium mineralization.
Denison-Operated Projects
Exploration drill
programs, to be operated by Denison, are planned on the Waterbury
Lake and Hook-Carter projects during the winter of
2019.
The 2019
exploration program is focused on continued drill testing of
priority target areas associated with the regional Midwest
Structure, including follow-up on the GB Trend, and initial testing
of the Oban South Trend and Midwest Extension area. Within the
Midwest Extension area, to the southwest of the Midwest deposits,
drill targets have been identified from a DCIP resistivity
completed during the fall of 2018. Additional target areas include
GB Northeast (electromagnetic target) and the Waterbury East claim
(follow-up of an historic mineralized intersection of 0.32%
U
3
O
8
over 1.1 metres
in drill hole WAT07-008).
The 2019
Waterbury Lake budget totals $1.8 million (100% basis) which
includes approximately 7,300 metres of diamond drilling in 18
holes. The results-driven drilling program is expected to be
completed during the winter season, and will be funded by Denison,
as KWULP has elected to continue to dilute their interest in the
project.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
A $1.4 million
(100% basis) diamond drilling program, consisting of approximately
3,900 metres in 6 holes, is planned for winter 2019. The program is
designed to complete the first phase of reconnaissance exploration
along 7.5 kilometres of the Patterson Corridor. The drill targets
include both electromagnetic (“EM”) and resistivity
targets from the 2017 ground surveys, which are coincident with
positive exploration vectors identified from a detailed geochemical
and clay analysis of the 2018 drilling results. Completion of these
targets, in addition to the targets drilled in 2018, will result in
a widely-spaced drill hole coverage, with an approximate 1,200
metre spacing along strike, on the southwestern portion of the
Patterson Corridor at Hook-Carter – providing a first pass
evaluation and a valuable regional dataset to enable prioritization
of follow-up drilling. The 2019 exploration program will be funded
100% by Denison as part of its agreement to fund ALX's 20% share of
the first $12 million in expenditures on the project (see above, as
well as Denison’s Press Releases dated October 13 and
November 7, 2016).
Non-Operated Projects
Denison has
elected not to fund its 14.4% share of the $1.6 million diamond
drilling program planned for the Waterfound River Project in 2019.
The Waterfound River project is a joint venture between Orano
Canada (53.98%), JCU (31.60%) and Denison (14.42%). Orano Canada is
the operator of the project.
MANAGEMENT AND ENVIRONMENTAL SERVICES
Net management
fees for 2019 from the management services agreement with UPC are
budgeted at $1.9 million. A portion of the management fees earned
from UPC are based on UPC’s net asset value, and are
therefore dependent upon the uranium spot price. Denison’s
budget for 2019 assumes a uranium spot price of USD$28.75 per pound
U
3
O
8
. Each USD$2 per
pound U
3
O
8
increase is
expected to translate into approximately $0.1 million in additional
management fees to Denison. While the term of the management
services agreement with UPC ends March 31, 2019, the 2019 budget
has been prepared with the assumption that the contract will be
renewed.
Revenue from
operations at DES during 2019 is budgeted to be $10.0 million, with
operating, overhead, and capital expenditures budgeted to be $8.5
million, resulting in a net contribution of approximately $1.5
million.
CORPORATE ADMINISTRATION AND OTHER
Corporate
administration expenses are budgeted to be $5.2 million in 2019 and
include head office salaries and benefits, office costs, audit and
regulatory costs, legal fees, investor relations expenses and all
other costs related to operating a public company with listings in
Canada and the United States.
In addition to
Corporate administration expenses in 2019, letter of credit and
standby fees relating to the 2019 Credit Facility are expected to
be approximately $400,000, which is expected to be more than offset
by interest income on the Company’s cash and short-term
investments.
CONTROLS AND PROCEDURES
The Company
carried out an evaluation, under the supervision and with the
participation of its management, including the President and Chief
Executive Officer and the Vice-President Finance and Chief
Financial Officer, of the effectiveness of the design and operation
of the Company’s ‘disclosure controls and
procedures’ (as defined in the Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. Based upon that
evaluation, the President and Chief Executive Officer and the
Vice-President Finance and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures are
effective as of December 31, 2018.
The
Company’s management is responsible for establishing and
maintaining an adequate system of internal control over financial
reporting. Management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the
Internal Control –
Integrated Framework, 2013
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Company’s internal
control over financial reporting was effective as of December 31,
2018.
There has not
been any change in the Company’s internal control over
financial reporting that occurred during 2018 that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over
financial
reporting.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation
of consolidated financial statements in accordance with IFRS
requires the use of certain critical accounting estimates and
judgements that affect the amounts reported. It also requires
management to exercise judgement in applying the Company’s
accounting policies. These judgements and estimates are based on
management’s best knowledge of the relevant facts and
circumstances taking into account previous experience. Although the
Company regularly reviews the estimates and judgements made that
affect these financial statements, actual results may be materially
different.
Significant
estimates and judgements made by management relate to:
Determination of a mineral property being sufficiently
advanced
The Company
follows a policy of capitalizing non-exploration related
expenditures on properties it considers to be sufficiently
advanced. Once a mineral property is determined to be sufficiently
advanced, that determination is irrevocable and the capitalization
policy continues to apply over the life of the property. In
determining whether or not a mineral property is sufficiently
advanced, management considers a number of factors, including, but
not limited to: current uranium market conditions, the quality of
resources identified, access to the resource, the suitability of
the resource to current mining methods, ease of permitting,
confidence in the jurisdiction in which the resource is located and
milling complexity.
Many of these
factors are subject to risks and uncertainties that can support a
“sufficiently advanced” determination as at one point
in time but not support it at another. The final determination
requires significant judgment on the part of the Company’s
management and directly impacts the carrying value of the
Company’s mineral properties.
Mineral property impairment reviews and impairment
adjustments
Mineral
properties are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. When an indicator is identified, the Company
determines the recoverable amount of the property, which is the
higher of an asset’s fair value less costs of disposal or
value in use. An impairment loss is recognized if the carrying
value exceeds the recoverable amount. The recoverable amount of a
mineral property may be determined by reference to estimated future
operating results and discounted net cash flows, current market
valuations of similar properties or a combination of the above. In
undertaking this review, management of the Company is required to
make significant estimates of, amongst other things: reserve and
resource amounts, future production and sale volumes, forecast
commodity prices, future operating, capital and reclamation costs
to the end of the mine’s life and current market valuations
from observable market data which may not be directly comparable.
These estimates are subject to various risks and uncertainties,
which may ultimately have an effect on the expected recoverable
amount of a specific mineral property asset. Changes in these
estimates could have a material impact on the carrying value of the
mineral property amounts and the impairment losses
recognized.
Deferred revenue – pre-sold toll milling
In February 2017,
Denison closed the APG Arrangement, pursuant to which Denison
monetized its right to receive future toll milling cash receipts
from July 1, 2016 onwards from the MLJV under the current toll
milling agreement with the CLJV (see note 14 in the audited
consolidated financial statements) for an up-front cash payment.
The arrangement consisted of a loan structure and a stream
arrangement (collectively, the “APG Arrangement”).
Significant judgement was required to determine whether the APG
Arrangement should be accounted for as a financial obligation (i.e.
debt) or deferred revenue.
Key factors that
support the deferred revenue conclusion reached by management
include, but are not limited to: a) Limited recourse loan structure
– amounts due to APG are generally repayable only to the
extent of Denison’s share of the toll milling revenues earned
by the MLJV from the processing of the first 215 million pounds of
U
3
O
8
from the Cigar
Lake mine on or after July 1, 2016, under the terms of the current
Cigar Lake toll milling agreement; and b) No warranty of the future
rate of production - no warranty is provided by Denison to APG
regarding the future rate of production at the Cigar Lake mine and
/ or the McClean Lake mill, or the amount and / or collectability
of cash receipts to be received by the MLJV in respect of toll
milling of Cigar Lake ore.
Deferred Revenue – pre-sold toll milling – revenue
recognition
Pursuant to the
APG Arrangement, Denison received a net up-front cash payment of
$39,980,000 which has been accounted for as a deferred revenue
liability as at the transaction close date (see note 14 in the
audited consolidated financial statements).
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Under IFRS 15,
the Company is required to recognize a revenue component and a
financing component as it draws down the deferred revenue
associated with the APG Arrangement over the life of the specified
toll milling production included in the APG Arrangement. In
estimating both of these components, the Company is required to
make assumptions relating to the future toll milling production
volume associated with Cigar Lake Phase 1 and 2 ore reserves and
resources (to end of mine life) and estimates of the annual timing
of that production. Changes in these estimates affect the
underlying production profile which in turn affects the average
toll milling drawdown rate used to recognize revenue.
When the average
toll milling drawdown rate is changed, the impact is reflected on a
life-to-date production basis with a retroactive adjustment to
revenue recorded in the current period. Going forward, each time
the Company updates its estimates of the underlying production
profile for the APG Arrangement (typically in the quarter that
information relating to Cigar Lake uranium resource updates and /
or production schedules becomes publicly available), retroactive
adjustments to revenue will be recorded in the period that the
revised estimate is determined – such adjustments, which are
non-cash in nature, could be material.
Deferred tax assets and liabilities
Deferred tax
assets and liabilities are computed in respect of taxes that are
based on taxable profit. Taxable profit will often differ from
accounting profit and management may need to exercise judgement to
determine whether some taxes are income taxes (and subject to
deferred tax accounting) or operating expenses.
Deferred tax
assets and liabilities are measured using enacted or substantively
enacted tax rates expected to apply when the temporary differences
between accounting carrying values and tax basis are expected to be
recovered or settled. The determination of the ability of the
Company to utilize tax loss carry forwards to offset deferred tax
liabilities requires management to exercise judgment and make
certain assumptions about the future performance of the Company.
Management is required to assess whether it is
“probable” that the Company will benefit from these
prior losses and other deferred tax assets. Changes in economic
conditions, commodity prices and other factors could result in
revisions to the estimates of the benefits to be realized or the
timing of utilizing the losses.
Reclamation obligations
Asset retirement
obligations are recorded as a liability when the asset is initially
constructed or a constructive or legal obligation exists and
typically involve identifying costs to be incurred in the future
and discounting them to the present using an appropriate discount
rate for the liability. The determination of future costs involves
a number of estimates relating to timing, type of costs, mine
closure plans, and review of potential methods and technical
advancements. Furthermore, due to uncertainties concerning
environmental remediation, the ultimate cost of the Company’s
decommissioning liability could differ materially from amounts
provided. The estimate of the Company’s obligation is subject
to change due to amendments to applicable laws and regulations and
as new information concerning the Company’s operations
becomes available. The Company is not able to determine the impact
on its financial position, if any, of environmental laws and
regulations that may be enacted in the future.
PENDING CHANGE IN ACCOUNTING POLICY AND NEW ACCOUNTING
PRONOUNCEMENTS
Accounting Standards Issued But Not Yet Applied
The Company will
adopt the following new accounting pronouncements which are
effective for fiscal periods of the Company beginning on or after
January 1, 2019:
International Financial Reporting Standard 16, Leases (‘IFRS
16’)
IFRS 16 requires
lessees to recognize assets and liabilities for most leases. Under
current standards, the Company expenses its lease payments.
Application of IFRS 16 is mandatory for reporting periods beginning
on or after January 1, 2019. The Company expects the adoption of
IFRS 16 to result in the following: a) increased reported assets
and liabilities; b) increased depreciation and accretion expense
and decreased lease expense within the statement of income (loss);
and c) decreased cash outflows from operations and increased cash
outflows from financing as lease payments will be recorded as
financing outflows in the cash flow statement. Assessments of the
magnitude of the above impacts of adopting the standard are
ongoing.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
RISK FACTORS
There are a
number of factors that could negatively affect Denison’s
business and the value of Denison’s common shares (the
‘Shares’), including the factors listed below. The
following information pertains to the outlook and conditions
currently known to Denison that could have a material impact on the
financial condition of Denison. Other factors may arise in the
future that are currently not foreseen by management of Denison,
which may present additional risks in the future. Current and
prospective security holders of Denison should carefully consider
these risk factors.
Speculative
Nature of Exploration and
Development
Exploration for minerals and the
development of mineral properties is speculative, and involves
significant uncertainties and financial risks that even a
combination of careful evaluation, experience and technical
knowledge may not eliminate. While the discovery of an ore body may
result in substantial rewards, few properties which are explored
prove to return the discovery of a commercially mineable deposit
and/or are ultimately developed into producing mines. As at the
date hereof, many of Denison’s projects are preliminary in
nature and mineral resource estimates include inferred mineral
resources, which are considered too speculative geologically to
have the economic considerations applied that would enable them to
be categorized as mineral reserves. Mineral resources that are not
mineral reserves do not have demonstrated economic viability Major
expenses may be required to
properly evaluate the
prospectivity of an exploration property, to develop new ore bodies
and to estimate mineral resources and
establish mineral reserves. There
is no assurance that the Company’s uranium deposits are
commercially mineable.
Imprecision of Mineral Reserve and Resource Estimates
Mineral reserve and resource figures are
estimates, and no assurances can be given that the estimated
quantities of uranium are in the ground and could be produced or
that Denison will receive the prices assumed in determining its
mineral reserves.
Such
estimates are expressions of judgment based on knowledge, mining
experience, analysis of drilling results and industry best
practices.
Valid estimates made
at a given time may significantly change when new information
becomes available.
While
Denison believes that the Company’s estimates of mineral
reserves and mineral resources are well established and reflect
management’s best estimates, by their nature, mineral reserve
and resource estimates are imprecise and depend, to a certain
extent, upon statistical inferences and geological interpretations,
which may ultimately prove
inaccurate.
Furthermore, market price fluctuations, as well as
increased capital or production costs or reduced recovery rates,
may render mineral reserves and resources
uneconomic
and
may ultimately result in a restatement of mineral reserves and
resources.
The evaluation of
mineral reserves or resources is always influenced by economic and
technological factors, which may change over
time.
Risks of, and Market Impacts on, Developing Mineral
Properties
Denison’s current and future uranium
production is dependent in part on the successful discovery and
development of new ore bodies and/or revival of previously existing
mining operations.
It is
impossible to ensure that
Denison’s current exploration and
development programs will result in profitable commercial mining
operations.
Where the Company
has been able to estimate the existence of mineral resources and
mineral reserves, such as for the Wheeler River project,
substantial expenditures are still required to establish economic
feasibility for commercial development and to obtain the required
environmental approvals, permitting and assets to commence
commercial operations.
Development projects are subject to the completion
of successful feasibility studies, engineering studies and
environmental assessments, the issuance of necessary governmental
permits, and the availability of adequate financing. The economic
feasibility of development projects is based upon many factors,
including, among others: the accuracy of mineral reserve and
resource estimates; metallurgical recoveries; capital and operating
costs of such projects; government regulations relating to prices,
taxes, royalties, infrastructure, land tenure, land use, importing
and exporting, and environmental protection
; political and economic
climate
; and uranium prices,
which are historically cyclical.
Denison
is currently preparing to undertake a feasibility study for Wheeler
River. Development projects have no operating history upon which to
base estimates of future cash flow. Denison’s estimates of
mineral reserves and mineral resources and cash operating costs
are, to a large extent, based upon detailed geological and
engineering analysis. Particularly for development projects,
estimates of mineral reserves and cash operating costs are, to a
large extent, based upon the interpretation of geologic data
obtained from drill holes and other sampling techniques, and
economic assessments and technical studies that derive estimates of
cash operating costs based upon anticipated tonnage and grades of
ore to be mined and processed, the configuration of the ore body,
expected recovery rates of uranium from the ore, estimated
operating costs, anticipated climatic conditions and other factors.
As a result, it is possible that actual capital and operating costs
and economic returns will differ significantly from those estimated
for a project prior to production.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
The decision as to whether a property, such as
Wheeler River, contains a commercial mineral deposit and should be
brought into production will depend upon the results of exploration
programs and/or feasibility studies, and the recommendations of
duly qualified engineers and/or geologists, all of which involves
significant expense and risk. Economic
analyses and feasibility studies
derive estimates of capital and
operating costs based upon many factors, including, among others:
mining method selection, anticipated tonnage and grades of ore to
be mined and processed; the configuration of the ore body; ground
and mining conditions; and expected recovery rates of the uranium
from the ore; and alternate mining methods.
It
is not unusual in the mining industry for new mining operations to
take longer than originally anticipated to bring into a producing
phase, and to require more capital than anticipated. Any of the
following events, among others, could affect the profitability or
economic feasibility of a project: unexpected problems during the
start-up phase delaying production, unanticipated changes in grade
and tonnes of ore to be mined and processed, unanticipated adverse
geological conditions, unanticipated metallurgical recovery
problems, incorrect data on which engineering assumptions are made,
availability of labour, costs of processing and refining
facilities, availability of economic sources of power and water,
unanticipated transportation costs, government regulations
(including regulations with respect to the environment, prices,
royalties, duties, taxes, permitting, restrictions on production,
quotas on exportation of minerals, environmental), fluctuations in
uranium prices, and accidents, labour actions and force majeure
events.
The
ability to sell and profit from the sale of any eventual mineral
production from a property will be subject to the prevailing
conditions in the applicable marketplace at the time of sale. The
demand for uranium and other minerals is subject to global economic
activity and changing attitudes of consumers and other
end-users’ demand. Many of these factors are beyond the
control of a mining company and therefore represent a market risk
which could impact the long term viability of Denison and its
operations.
Risks Associated with the Selection of Novel Mining
Methods
As
disclosed in the Wheeler PFS Report, Denison has selected the ISR
mining method for production at the Phoenix deposit. While test
work completed to date indicates that ground conditions and the
mineral reserves estimated to be contained within the deposit are
amenable to extraction by way of ISR, actual conditions could be
materially different from those estimated based on the
Company’s technical studies completed to-date. While best
practices have been utilized in the development of its estimates,
actual results may differ significantly. Denison will need to
complete substantial additional work to further advance and/or
confirm its current estimates and projections for development to
the level of a feasibility study. As a result, it is possible that
actual costs and economic returns of any mining operations may
differ materially from Denison’s best estimates.
Dependence on Obtaining Licences and other Regulatory and Policy
Risks
Uranium
mining and milling operations and exploration activities, as well
as the transportation and handling of the products produced, are
subject to extensive regulation by federal, provincial and state
governments. Such regulations relate to production, development,
exploration, exports, imports, taxes and royalties, labour
standards, occupational health, waste disposal, protection and
remediation of the environment, mine decommissioning and
reclamation, mine safety, toxic substances, transportation safety
and emergency response, and other matters. Compliance with such
laws and regulations is currently, and has historically, increased
the costs of exploring, drilling, developing, constructing,
operating and closing Denison’s mines and processing
facilities. It is possible that, in the future, the costs, delays
and other effects associated with such laws and regulations may
impact Denison’s decision with respect to exploration and
development properties, including whether to proceed with
exploration or development, or that such laws and regulations may
result in Denison incurring significant costs to remediate or
decommission properties that do not comply with applicable
environmental standards at such time.
The
development of mines and related facilities is contingent upon
governmental approvals that are complex and time consuming to
obtain and which involve multiple governmental agencies.
Environmental and regulatory review has become a long, complex and
uncertain process that can cause potentially significant delays. In
addition, future changes in governments, regulations and policies,
such as those affecting Denison’s mining operations and
uranium transport, could materially and adversely affect
Denison’s results of operations and financial condition in a
particular period or its long-term business prospects.
The
ability of the Company to obtain and maintain permits and approvals
and to successfully develop and operate mines may be adversely
affected by real or perceived impacts associated with its
activities that affect the environment and human health and safety
at its projects and in the surrounding communities. The real or
perceived impacts of the activities of other mining companies may
also adversely affect our ability to obtain and maintain permits
and approvals. The Company is uncertain as to whether all necessary
permits will be obtained or renewed on acceptable terms or in a
timely manner. Any significant delays in obtaining or renewing such
permits or licences in the future could have a material adverse
effect on Denison.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Denison
expends significant financial and managerial resources to comply
with such laws and regulations. Denison anticipates it will have to
continue to do so as the historic trend toward stricter government
regulation may continue. Because legal requirements are frequently
changing and subject to interpretation, Denison is unable to
predict the ultimate cost of compliance with these requirements or
their effect on operations. While the Company has taken great care
to ensure full compliance with its legal obligations, there can be
no assurance that the Company has been or will be in full
compliance with all of these laws and regulations, or with all
permits and approvals that it is required to have.
Failure
to comply with applicable laws, regulations and permitting
requirements, even inadvertently, may result in enforcement
actions. These actions may result in orders issued by regulatory or
judicial authorities causing operations to cease or be curtailed,
and may include corrective measures requiring capital expenditures,
installation of additional equipment or remedial actions. Companies
engaged in uranium exploration operations may be required to
compensate others who suffer loss or damage by reason of such
activities and may have civil or criminal fines or penalties
imposed for violations of applicable laws or
regulations.
Consultation Matters and Engagement with Canada’s First
Nations
First
Nations and Métis title claims may impact Denison’s
ability and that of its joint venture partners to pursue
exploration, development and mining at its Saskatchewan properties.
Pursuant to historical treaties, First Nations bands in northern
Saskatchewan ceded title to most traditional lands but continue to
assert title to the minerals within the lands. Managing relations
with the local native bands is a matter of paramount importance to
Denison. Consultation with, and consideration of other rights of,
affected aboriginal peoples during the project permitting process
may require accommodations, including undertakings regarding
employment, royalty payments and other matters. This may affect the
timetable and costs of development of the Company’s
projects.
The
Company’s relationship with the communities in which it
operates are critical to ensure the future success of its existing
operations and the construction and development of its projects.
There is an increasing level of public concern relating to the
perceived effect of mining activities on the environment and on
communities impacted by such activities. Adverse publicity relating
to the mining industry generated by non-governmental organizations
and others could have an adverse effect on the Company’s
reputation or financial condition and may impact its relationship
with the communities in which it operates. While the Company is
committed to operating in a socially responsible manner, there is
no guarantee that the Company’s efforts in this regard will
mitigate this potential risk.
The
inability of the Company to maintain positive relationships with
local communities may result in additional obstacles to permitting,
increased legal challenges, or other disruptions to the
Company’s exploration, development and production plans, and
could have a significant adverse impact on the Company’s
share price and financial condition.
Environmental, Health and Safety Risks
Denison has expended significant financial and
managerial resources to comply with environmental protection laws,
regulations and permitting requirements in each jurisdiction where
it operates, and anticipates that it will be required to continue
to do so in the future as the historical trend toward stricter
environmental regulation may continue.
The uranium industry is subject to, not only the
worker health, safety and environmental risks associated with all
mining businesses, including potential liabilities to third parties
for environmental damage, but also to additional risks uniquely
associated with uranium mining and processing. The possibility of
more stringent regulations exists in the areas of worker health and
safety, the disposition of wastes, the decommissioning and
reclamation of mining and processing sites, and other environmental
matters each of which could have a material adverse effect on the
costs or the viability of a particular project.
Denison’s facilities operate under various
operating and environmental permits,
licences
and
approvals that contain conditions that must be met, and
Denison’s right to pursue its development plans is dependent
upon receipt of, and compliance with, additional permits, licences
and approvals. Failure to obtain such permits, licenses and
approvals and/or meet any conditions set forth therein could have a
material adverse effect on Denison’s financial condition or
results of operations.
Although the Company believes its operations are
in compliance, in all material respects, with all relevant
permits,
licences
and regulations involving worker
health and safety as well as the environment, there can be no
assurance regarding continued compliance or ability of the Company
to meet stricter environmental regulation, which may also require
the expenditure of significant additional financial and managerial
resources.
Mining companies are often targets of actions by
non-governmental organizations and environmental groups in the
jurisdictions in which they operate.
Such organizations and groups may take actions in
the future to disrupt Denison's operations.
They may also apply pressure to local, regional
and national government officials to take actions which are adverse
to Denison's operations.
Such
actions could have an adverse effect on Denison's ability to
advance its projects and, as a result, on its financial position
and results.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Global Demand and International Trade Restrictions
The international uranium industry, including the
supply of uranium concentrates, is relatively small compared to
other minerals, competitive and heavily regulated.
Worldwide demand for uranium is
directly tied to the demand for electricity produced by the nuclear
power industry, which is also subject to extensive government
regulation and policies.
In
addition, the international marketing of uranium is subject to
governmental policies and certain trade restrictions.
For example, the supply and marketing
of uranium from Russia and from certain republics of the former
Soviet Union is, to some extent, impeded by a number of
international trade agreements and policies.
In the United States, certain
uranium producers filed a petition with the US DOC to investigate
the import of uranium into the US under Section 232 of the 1962
Trade Expansion Act. The DOC agreed to investigate the issue and
its findings will be presented to the President of the United
States, whom, under Section 232, is empowered to use tariffs or
other means to adjust the imports of goods or materials from other
countries if it deems the quantity or circumstances surrounding
those imports to threaten national security.
It is expected
that the findings by the DOC, as well as an ultimate decision on
whether a remedy will be imposed and what it will look like, will
be made by the US President in the second half of 2019. The
uncertainty surrounding this trade action is believed to have
impacted the uranium purchasing activities of nuclear utilities,
especially in the US, and consequently negatively impacted the
market price of uranium and the uranium industry as a whole.
Depending on the outcome of the trade action, there is the
potential for this to have further negative impacts on the uranium
market globally.
Restrictive
trade agreements, governmental policies and/or trade restrictions
are beyond the control of Denison and may affect the supply of
uranium available in the United States and Europe, which are
currently the largest markets for uranium in the world, as well as
the future of supply to developing markets, such as China and
India. If substantial changes are made to the regulations affecting
global marketing and supply, the Company’s business,
financial condition and results of operations may be materially
adversely affected.
Volatility and Sensitivity to Market Prices
The value of the Company’s mineral
resources, mineral reserves and estimates of the viability of
future production for its projects is heavily influenced by long
and short term market prices of U
3
O
8
.
Historically, these prices have seen significant fluctuations, and
have been and will continue to be affected by numerous factors
beyond Denison’s control.
Such factors include, among others: demand for
nuclear power, political and economic conditions in uranium
producing and consuming countries, public and political response to
nuclear incidents, reprocessing of used reactor fuel and the
re-enrichment of depleted uranium tails, sales of excess civilian
and military inventories (including from the dismantling of nuclear
weapons) by governments and industry participants, uranium supplies
from other secondary sources, and production levels and costs of
production from primary uranium suppliers. Uranium prices failing
to reach or sustain projected levels can impact operations by
requiring a reassessment of the economic viability of the
Company’s projects, and such reassessment alone may cause
substantial delays and/or interruptions in project development,
which could have a material adverse effect on the results of
operations and financial condition of Denison.
Public Acceptance of Nuclear Energy and Competition from Other
Energy Sources
Growth of the uranium and nuclear
power industry will depend upon continued and increased acceptance
of nuclear technology as a clean means of generating
electricity.
Because of unique political,
technological and environmental factors that affect the nuclear
industry, including the risk of a nuclear incident, the industry is
subject to public opinion risks that could have an adverse impact
on the demand for nuclear power and increase the regulation of the
nuclear power industry.
Nuclear energy competes with
other sources of energy, including oil, natural gas, coal and
hydro-electricity. These other energy sources
are
,
to some
extent
,
interchangeable with
nuclear energy, particularly over the longer term.
Technical
advancements in
, and government subsidies
for,
renewable
and other alternate forms of energy, such as wind and solar power,
could make these forms of energy more commercially viable and put
additional pressure on the demand for uranium concentrates.
Sustained lower
prices of
alternate forms of energy may
result in lower demand for uranium
concentrates.
Current
estimates project increases in the world’s nuclear power
generating capacities, primarily as a result of a significant
number of nuclear reactors that are under construction, planned, or
proposed in China, India and various other countries around the
world. Market projections for future demand for uranium are based
on various assumptions regarding the rate of construction and
approval of new nuclear power plants, as well as continued public
acceptance of nuclear energy around the world. The rationale for
adopting nuclear energy can be varied, but often includes the clean
and environmentally friendly operation of nuclear power plants, as
well as the affordability and round-the-clock reliability of
nuclear power. A change in public sentiment regarding nuclear
energy could have a material impact on the number of nuclear power
plants under construction, planned or proposed, which could have a
material impact on the market’s and the Company’s
expectations for the future demand for uranium and the future price
of uranium.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Capital Intensive Industry and Uncertainty of Funding
The exploration and development of mineral
properties and the ongoing operation of mines
and facilities
requires a substantial amount of capital and may
depend on Denison’s ability to obtain financing through joint
ventures, debt financing, equity financing or other means.
General market conditions, volatile
uranium markets, a claim against the Company, a significant
disruption to the Company’s business or operations or other
factors may make it difficult to secure financing necessary
to fund
the substantial capital that is typically required
in order to bring a mineral project, such as Wheeler River, to a
production decision or to place a property, such as Wheeler River,
into commercial production.
Similarly, there is uncertainty regarding the
Company’s ability to fund additional exploration of the
Company’s projects or the acquisition of new projects. There
is no assurance that the Company will be successful in obtaining
required financing as and when needed on acceptable
terms
, and failure to obtain
such additional financing could result in the delay or indefinite
postponement of the Company’s exploration, development or
other growth
initiatives.
Market Price of Shares
Securities of mining companies have experienced
substantial volatility in the past, often based on factors
unrelated to the financial performance or prospects of the
companies involved.
These
factors include macroeconomic conditions in North America and
globally, and market perceptions of the attractiveness of
particular industries.
The
price of Denison's securities is also likely to be significantly
affected by short-term changes in commodity prices, other mineral
prices, currency exchange fluctuation, or changes in its financial
condition or results of operations as reflected in its periodic
earnings reports and/or news releases. Other factors unrelated to
the performance of Denison that may have an effect on the price of
the securities of Denison include the following: the extent of
analytical coverage available to investors concerning the business
of Denison; lessening in trading volume and general market interest
in Denison's securities; the size of Denison's public float and its
inclusion in market indices may limit the ability of some
institutions to invest in Denison's securities; and a substantial
decline in the price of the securities of Denison that persists for
a significant period of time could cause Denison's securities to be
delisted from an exchange. If an active market for the securities
of Denison does not continue, the liquidity of an investor's
investment may be limited and the price of the securities of the
Company may decline such that investors may lose their entire
investment in the Company.
As a
result of any of these factors, the market price of the securities
of Denison at any given point in time may not accurately reflect
the long-term value of Denison.
Securities class-action litigation often has been
brought against companies following periods of volatility in the
market price of their securities.
Denison may in the future be the target of similar
litigation. Securities litigation could result in substantial costs
and damages and divert management's attention and
resources.
Dilution from Further Equity Financing
While active in exploring for new uranium
discoveries in the Athabasca Basin region, Denison’s present
focus is on advancing Wheeler River to a development decision, with
the potential to become the next large scale uranium producer in
Canada. Denison will require additional funds to further such
activities.
If Denison raises
additional funding by issuing additional eq
uity securities, such financing
would
substantially dilute the interests of
Shareholders and could reduce the
value of their investment.
Reliance on Other Operators
At some of its properties, Denison is not the
operator and therefore is not in control of all of the activities
and operations at the site.
As
a result, Denison is and will be, to a certain extent, dependent on
the operators for the nature and timing of activities related to
these properties and may be unable to direct or control such
activities.
As an example,
Orano
Canada
is the operator and majority owner of the
McClean Lake
and Midwest joint
ventures
in
Saskatchewan, Canada. The McClean Lake mill employs unionized
workers who work under collective agreements.
Orano
Canada,
as the operator, is responsible for
most operational and production decisions
and
all dealings with unionized
employees.
Orano
Canada may not be successful in its
attempts to renegotiate the collective agreements, which may impact
mill and mining operations. Similarly,
Orano
Canada
is responsible for all licensing and dealings with various
regulatory authorities.
Orano
Canada maintains the regulatory licences in order to operate the
McClean Lake mill, all of which are subject to renewal from time to
time and are required in order for the mill to operate in
compliance with applicable laws and regulations. Any lengthy work
stoppages
or disruption to the
operation of the mill or mining operations as a result of a
licensing matter or regulatory compliance may have a material
adverse impact on the Company’s future cash flows, earnings,
results of operations and financial condition.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Reliance on Contractors and Experts
In
various aspects of its operations, Denison relies on the services,
expertise and recommendations of its service providers and their
employees and contractors, whom often are engaged at significant
expense to the Company. For example, the decision as to whether a
property contains a commercial mineral deposit and should be
brought into production will depend in large part upon the results
of exploration programs and/or feasibility studies, and the
recommendations of duly qualified third party engineers and/or
geologists. In addition, while Denison emphasizes the importance of
conducting operations in a safe and sustainable manner, it cannot
exert absolute control over the actions of these third parties when
providing services to Denison or otherwise operating on
Denison’s properties. Any material error, omission, act of
negligence or act resulting in environmental pollution, accidents
or spills, industrial and transportation accidents, work stoppages
or other actions could adversely affect the Company’s
operations and financial condition.
Benefits Not Realized From Transactions
Denison has completed a number of transactions
over the last several years, including without limitation the
acquisition of International Enexco Ltd
, the acquisition of Fission
Energy Corp.
,
the acquisition of JNR
Resources Inc.
, the sale of
its mining assets and operations located in the
United States to Energy Fuels Inc.
,
the sale of
its mining assets and operations located in Mongolia to Uranium
Industry a.s., the sale of its mining assets and operations located
in Africa to GoviEx
, the
optioning of the Moore Lake property to Skyharbour,
the acquisition of an 80% interest in
the Hook-Carter property from ALX, the acquisition of an interest
in the Moon Lake property from CanAlaska,
entering into the APG Transaction and the
acquisition of Cameco’s interest in the WRJV.
Despite Denison’s belief that
these transactions, and others which may be completed in the
future, will be in Denison’s best interest and benefit the
Company and Denison’s shareholders, Denison may not realize
the anticipated benefits of such transactions or realize the full
value of the consideration paid or received to complete the
transactions.
This could result
in significant accounting impairments or write-downs of the
carrying values of mineral properties or other assets and could
adversely impact the Company and the price of its
Shares
.
Inability to Expand and Replace Mineral Reserves and
Resources
Denison’s mineral reserves and resources at
its McClean Lake, Midwest, Wheeler River
and Waterbury Lake projects are
Denison’s
material
future sources of uranium
production.
Unless other
mineral reserves or resources are discovered or acquired,
Denison’s sources of future production for uranium
concentrates will decrease over time when its current mineral
reserves and resources are depleted.
There can be no assurance that Denison’s
future exploration, development and acquisition efforts will be
successful in replenishing its mineral reserves and
resources.
In addition, while
Denison believes that many of its properties
demonstrate development potential, there can be no
assurance that they can or will be successfully developed
and
put into production or that
they will be able to replace production in future
years.
Competition for Properties
Significant competition exists for the limited
supply of mineral lands available for acquisition. Participants in
the mining business include large
established companies with long operating
histories. In certain circumstances, the Company may be at a
disadvantage in acquiring new properties as competitors may have
greater financial resources and more technical staff.
Accordingly, there can be no assurance
that the Company will be able to compete successfully to acquire
new properties or that any such acquired assets would yield
resources or reserves or result in commercial mining
operations.
Property Title Risk
The Company has investigated its rights to explore
and exploit all of its material properties and, to the best of its
knowledge, those rights are in good standing.
However, no assurance can be given that such
rights will not be revoked, or significantly altered, to its
detriment.
There can also be no
assurance that the Company’s rights will not be challenged or
impugned by third parties, including the Canadian federal,
provincial
and local
governments, as well as
by
First
Nations and Métis.
There is also a risk that Denison's title to, or
interest in, its properties may be subject to defects or
challenges. If such defects
or
challenges
cover a material
portion of Denison's property, they could have a material adverse
effect on Denison's results of operations, financial condition,
reported mineral reserves and resources and/or
long
-
term business prospects.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Global Financial Conditions
Global financial conditions continue to be subject
to volatility arising from international geopolitical developments
and global economic phenomenon, as well as general financial market
turbulence.
Access to public
financing and credit can be negatively impacted by the effect of
these events on Canadian and global credit markets.
The health of the global financing and
credit markets may impact the ability of Denison to obtain equity
or debt financing in the future and the terms at which financing or
credit is available to Denison.
These increased levels of volatility and market
turmoil could adversely impact Denison's operations and the trading
price of the
Shares
.
Ability to Maintain Obligations
under
the 2019 Credit Facility
and Other Debt
Denison is required to satisfy certain financial
covenants in order to maintain its good standing under the
2019
Credit Facility.
Denison is also subject to a number of restrictive
covenants under the 2019 Credit Facility and the APG Transaction,
such as restrictions on Denison’s ability to incur additional
indebtedness and sell, transfer of otherwise dispose of material
assets.
Denison may from time
to time enter into other arrangements to borrow money in order to
fund its operations and expansion plans, and such arrangements may
include covenants that have similar obligations or that restrict
its business in some way.
Events may occur in the future, including events
out of Denison's control
, which
could
cause Denison to fail to
satisfy its obligations under the
2019 Credit Facility, APG Transaction or other
debt instruments.
In such
circumstances, the amounts drawn under Denison's debt agreements
may become due and payable before the agreed maturity date, and
Denison may not have the financial resources to repay such amounts
when due.
The 2019
Credit Facility and APG Transaction
are secured by DMI's main properties by a pledge of the shares of
DMI.
If Denison were to default
on its obligations under the
2019 Credit Facility, APG Transaction or other
secured debt instruments in the future, the lender(s) under such
debt instruments could enforce their security and seize significant
portions of Denison's assets.
Change of Control Restrictions
The APG Transaction and certain other of
Denison’s agreements contain provisions that could adversely
impact Denison in the case of a transaction that would result in a
change of control of Denison or certain of its subsidiaries.
In the event that consent is required
from our counterparty and our counterparty chooses to withhold its
consent to a merger or acquisition, then such party could seek to
terminate certain agreements with Denison, including certain
agreements forming part of the APG
Transaction,
or require Denison to buy the counterparty’s
rights back from them, which could adversely affect Denison’s
financial resources and prospects. If applicable, these restrictive
contractual provisions could delay or discourage a change in
control of our company that could otherwise be beneficial to
Denison or its shareholders.
Decommissioning and Reclamation
As owner of the Elliot Lake decommissioned sites
and part owner of the McClean Lake mill, McClean Lake mines, the
Midwest uranium project and certain exploration properties, and for
so long as the Company remains an owner thereof, the Company is
obligated to eventually reclaim or participate in the reclamation
of such properties.
Most, but
not all, of the Company’s reclamation obligations are
secured, and cash and other assets of the Company have been
reserved to secure this obligation.
Although the Company’s financial statements
record a liability for the asset retirement obligation, and the
security requirements are periodically reviewed by applicable
regulatory authorities, there can be no assurance or guarantee that
the ultimate cost of such reclamation obligations will not exceed
the estimated liability contained on the Company’s financial
statements.
As
Denison’s properties approach or go into decommissioning,
regulatory review of the Company’s decommissioning plans may
result in additional decommissioning requirements, associated costs
and the requirement to provide additional financial assurances. It
is not possible to predict what level of decommissioning and
reclamation (and financial assurances relating thereto) may be
required from Denison in the future by regulatory
authorities.
Technical Innovation and Obsolescence
Requirements for Denison’s products and
services may be affected by technological changes in nuclear
reactors, enrichment and used uranium fuel reprocessing.
These technological changes could
reduce the demand for uranium or reduce the value of
Denison’s environmental services to potential
customers.
In addition,
Denison’s competitors may adopt technological advancements
that give them an advantage over Denison.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Mining and Insurance
Denison’s business is capital intensive and
subject to a number of risks and hazards, including environmental
pollution, accidents or spills, industrial and transportation
accidents, labour disputes, changes in the regulatory environment,
natural phenomena (such as inclement weather conditions,
earthquakes, pit wall failures and cave-ins) and encountering
unusual or unexpected geological conditions.
Many of the foregoing risks and hazards could
result in damage to, or destruction of, Denison’s mineral
properties or processing facilities
in which it has an interest
, personal injury or death, environmental damage,
delays in or interruption of or cessation of exploration,
development, production or processing
, or costs, monetary losses and potential legal
liability and adverse governmental action.
In addition, due to the radioactive nature of the
materials handled in uranium
exploration,
mining and processing,
as applicable,
additional costs and risks are incurred by
Denison
and its joint venture
partners
on a regular and
ongoing basis.
Although Denison maintains insurance to cover some
of these risks and hazards in amounts it believes to be reasonable,
such insurance may not provide adequate coverage in the event of
certain circumstances. No assurance can be given that such
insurance will continue to be available, that it will be available
at economically feasible premiums
,
or that it
will provide sufficient coverage for losses related to these or
other risks and hazards.
Denison
may be subject to liability or sustain loss for certain risks and
hazards against which it cannot insure or which it may reasonably
elect not to insure because of the cost. This lack of insurance
coverage could result in material economic harm to
Denison.
Anti-Bribery and Anti-Corruption Laws
The Company is subject to anti-bribery and
anti-corruption laws, including the Corruption of Foreign Public
Officials Act (Canada).
Failure
to comply with these laws could subject the Company to, among other
things, reputational damage, civil or criminal penalties, other
remedial measures and legal expenses which could adversely affect
the Company’s business, results from operations, and
financial condition.
It may not
be possible for the Company to ensure compliance with anti-bribery
and anti-corruption laws in every jurisdiction in which its
employees, agents, sub-contractors or joint venture partners are
located or may be located in the future.
Climate Change
Due
to changes in local and global climatic conditions, many analysts
and scientists predict an increase in the frequency of extreme
weather events such as floods, droughts, forest and brush fires and
extreme storms. Such events could materially disrupt the
Company’s operations, particularly if they affect the
Company’s sites, impact local infrastructure or threaten the
health and safety of the Company’s employees and contractors.
In addition, reported warming trends could result in later
freeze-ups and warmer lake temperatures, affecting the
Company’s winter exploration programs at certain of its
material projects. Any of such events could result in material
economic harm to Denison.
The
Company is focused on operating in a manner designed to minimize
the environmental impacts of its activities; however, environmental
impacts from mineral exploration and mining activities are
inevitable. Increased environmental regulation and/or the use of
fiscal policy by regulators in response to concerns over climate
change and other environmental impacts, such as additional taxes
levied on activities deemed harmful to the environment, could have
a material adverse effect on Denison’s financial condition or
results of operations.
Information Systems and Cyber Security
The Company's operations depend upon the
availability, capacity, reliability and security of its information
technology (IT) infrastructure, and its ability to expand and
update this infrastructure as required, to conduct daily
operations.
Denison relies on
various IT systems in all areas of its operations, including
financial reporting, contract management, exploration and
development data analysis, human resource management, regulatory
compliance and communications with employees and third
parties.
These
IT systems could be subject to network disruptions caused by a
variety of sources, including computer viruses, security breaches
and cyber-attacks, as well as network and/or hardware disruptions
resulting from incidents such as unexpected interruptions or
failures, natural disasters, fire, power loss, vandalism and theft.
The Company's operations also depend on the timely maintenance,
upgrade and replacement of networks, equipment, IT systems and
software, as well as pre-emptive expenses to mitigate the risks of
failures.
The ability of the IT function to support the
Company’s business in the event of any such
occurrence
and the ability to recover key systems from
unexpected interruptions cannot be fully tested. There is a risk
that, if such an event actually occurs, the Company’s
continuity plan may not be adequate to immediately address all
repercussions of the disaster. In the event of a disaster affecting
a data centre or key office location, key systems may be
unavailable for a number of days, leading to inability to perform
some business processes in a timely manner.
As a result, the failure of Denison’s IT
systems or a component thereof could, depending on the nature of
any such failure, adversely impact the Company's reputation and
results of operations.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Although to date the Company has not experienced
any material losses relating to cyber-attacks or other information
security breaches, there can be no assurance that the Company will
not incur such losses in the future. Unauthorized access to
Denison’s IT systems by employees or third parties could lead
to corruption or exposure of confidential, fiduciary or proprietary
information, interruption to communications or operations or
disruption to the Company’s business activities or its
competitive position. Further, disruption of critical IT services,
or breaches of information security, could have a negative effect
on the Company’s operational performance and its
reputation.
The Company's risk
and exposure to these matters cannot be fully mitigated because of,
among other things, the evolving nature of these threats. As a
result, cyber security and the continued development and
enhancement of controls, processes and practices designed to
protect systems, computers, software, data and networks from
attack, damage or unauthorized access remain a
priority.
The Company applies technical and process controls
in line with industry-accepted standards to protect information,
assets and systems; however these controls may not adequately
prevent cyber-security breaches. There is no assurance that the
Company will not suffer losses associated with cyber-security
breaches in the future, and may be required to expend significant
additional resources to investigate, mitigate and remediate any
potential vulnerabilities.
As
cyber threats continue to evolve, the Company may be required to
expend additional resources to continue to modify or enhance
protective measures or to investigate and remediate any security
vulnerabilities.
Dependence on Key Personnel and Qualified and Experienced
Employees
Denison’s success depends on the efforts and
abilities of certain senior officers and key employees.
Certain of Denison’s employees
have significant experience in the uranium industry, and the number
of individuals with significant experience in this industry is
small. While Denison does not foresee any reason why such officers
and key employees will not remain with Denison, if for any reason
they do not, Denison could be adversely affected. Denison has not
purchased key man life insurance for any of these
individuals.
Denison’s
success also depends on the availability of qualified and
experienced employees to work in Denison’s operations and
Denison’s ability to attract and retain such
employees.
Conflicts of Interest
Some of the directors and officers of Denison are
also directors of other companies that are similarly engaged in the
business of acquiring, exploring and developing natural resource
properties. Such associations may give rise to conflicts of
interest from time to time.
In
particular, one of the consequences would be that corporate
opportunities presented to a director or officer of Denison may be
offered to another company or companies with which the
director
or
officer is associated, and may not be presented or
made available to Denison.
The
directors
and officers
of Denison are required by law to act
honestly and in good faith with a view to the best interests of
Denison, to disclose any interest which they may have in any
project or opportunity of Denison, and
, where applicable for directors,
to abstain from voting on such
matter.
Conflicts of interest
that arise will be subject to and governed by the procedures
prescribed in the Company’s Code of Ethics and by the
Ontario Business Corporations Act
(‘OBCA’)
.
Disclosure and Internal Controls
Internal controls over financial reporting are
procedures designed to provide reasonable assurance that
transactions are properly authorized, assets are safeguarded
against unauthorized or improper use, and transactions are properly
recorded and reported.
Disclosure controls and procedures are designed to
ensure that information required to be disclosed by a company in
reports filed with securities regulatory agencies is recorded,
processed, summarized and reported on a timely basis and is
accumulated and communicated to the company’s management,
including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure.
A control system,
no matter how well designed and operated, can provide only
reasonable, not absolute, assurance with respect to the reliability
of reporting, including financial reporting and financial statement
preparation.
Potential Influence of KEPCO and KHNP
Effective December 2016, KEPCO indirectly
transferred the majority of its interest in Denison to KHNP Canada.
Denison and KHNP Canada subsequently entered into the KHNP SRA (on
substantially similar terms as the original
strategic relationship agreement
between Denison and KEPCO), pursuant
to which KHNP Canada
is
contractually entitled to Board representation.
Provided
KHNP
Canada
holds over 5% of
the Shares
, it is entitled to nominate one director for
election to the Board at any Shareholder
meeting.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
KHNP Canada
’s shareholding level gives it a large vote
on decisions to be made by shareholders of Denison, and its right
to nominate a director may give
KHNP Canada
influence on decisions made by Denison's
Board.
Although
KHNP
Canada
’s
director nominee will be subject to duties under the OBCA to act in
the best interests of Denison as a whole, such director nominee is
likely to be an employee of
KHNP and he or she may give special attention
to
KHNP’
s
or
KEPCO
’s interests as
indirect
Shareholders.
The interests of
KHNP
and
KEPCO,
as
indirect
Shareholders,
may not always be consistent with the
interests of
other
Shareholders
.
The
KHNP
SRA
also includes
provisions
granting KHNP
Canada
a right of first offer
for certain asset sales and the right to be approached to
participate in certain potential acquisitions.
The right of first offer and participation right
of
KHNP Canada
may negatively affect Denison's
ability or willingness to entertain certain business opportunities,
or the attractiveness of Denison as a potential party for certain
business transactions.
KEPCO
’
s
large
indirect
shareholding block may also make
Denison less attractive to third parties considering an acquisition
of Denison if those third parties are not able to negotiate terms
with KEPCO
or KHNP
Canada
to support such an
acquisition.
QUALIFIED PERSON
The disclosure
regarding the PEA, PFS, and environmental and sustainability
activities at Wheeler River, as well the Company’s mineral
reserve estimates was reviewed and approved by Peter Longo, P. Eng,
MBA, PMP, Denison’s Vice-President, Project Development, who
is a Qualified Person in accordance with the requirements of NI
43-101. The balance of the disclosure of scientific and technical
information regarding Denison’s properties in the MD&A
was prepared by or reviewed by Dale Verran, MSc, Pr.Sci.Nat., the
Company’s Vice President, Exploration, a Qualified Person in
accordance with the requirements of NI 43-101. For a description of
the quality assurance program and quality control measures applied
by Denison, please see Denison’s Annual Information Form
dated March 27, 2018 available under Denison's profile on SEDAR at
www.sedar.com, and its Form 40-F available on EDGAR 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 applicable United States and 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’, ‘budget’,
‘scheduled’, ‘estimates’,
‘forecasts’, ‘intends’,
‘anticipates’, or ‘believes’, or the
negatives and/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’.
In particular,
this MD&A contains forward-looking information pertaining to
the following: the benefits to be derived from corporate
transactions; the estimates of Denison's mineral reserves and
mineral resources, including the new mineral resource estimate for
the Huskie deposit; exploration, development and expansion plans
and objectives, including the results of the PFS, and statements
regarding anticipated budgets, fees and expenditures; expectations
regarding Denison’s joint venture ownership interests and the
continuity of its agreements with its partners; expectations
regarding adding to its mineral reserves and resources through
acquisitions or exploration; expectations regarding the toll
milling of Cigar Lake ores; expectations regarding revenues and
expenditures from operations at DES; expectations regarding
revenues from the UPC management contract; and the annual operating
budget and capital expenditure programs, estimated exploration and
development expenditures and reclamation costs and Denison's share
of same. 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.
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 accurate and results may differ materially from
those anticipated in this forward-looking information. For a
discussion in respect of risks and other factors that could
influence forward-looking events, please refer to the factors
discussed in Denison’s Annual Information Form dated March
27, 2018 under the heading ‘Risk Factors’. These
factors are not, and should not be construed as being
exhaustive.
Accordingly,
readers should not place undue reliance on forward-looking
statements. The forward-looking information contained in this
MD&A is expressly qualified by this cautionary statement. Any
forward-looking information and the assumptions made with respect
thereto speaks only as of the date of this MD&A. 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.
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Cautionary Note to United States Investors
Concerning Estimates of Measured, Indicated and Inferred Mineral
Resources and Probable Mineral Reserves:
This MD&A may
use the terms 'measured', 'indicated' and 'inferred' mineral
resources. United States investors are advised that while such
terms have been prepared in accordance with the definition
standards on mineral reserves of the Canadian Institute of Mining,
Metallurgy and Petroleum referred to in Canadian National
Instrument 43-101 Mineral Disclosure Standards ("NI 43-101") and
are recognized and required by Canadian regulations, the United
States Securities and Exchange Commission ("SEC") 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.
The estimates of
mineral reserves in this MD&A have been prepared in accordance
with NI 43-101. The definition of probable mineral reserves used in
NI 43-101 differs from the definition used by the SEC in the SEC's
Industry Guide 7. Under the requirements of the SEC,
mineralization may not be classified as a "reserve" unless the
determination has been made, pursuant to a "final" feasibility
study that the mineralization could be economically and legally
produced or extracted at the time the reserve determination is
made. Denison has not prepared a feasibility study for the purposes
of NI 43-101 or the requirements of the SEC. Accordingly,
Denison's probable mineral reserves disclosure may not be
comparable to information from U.S. companies subject to the
reporting and disclosure requirements of the
SEC.
|
Denison Mines
Corp.
1100 – 40
University Ave
Toronto, ON M5J
1T1
www.denisonmines.com
|
PRESS
RELEASE
DENISON REPORTS RESULTS FROM 2018 AND OUTLOOK FOR 2019
Toronto, ON – March 7,
2019. Denison Mines Corp.
(“Denison” or the
“Company”) (DML: TSX, DNN: NYSE American) filed its
Consolidated Financial Statements and Management’s Discussion
& Analysis (“MD&A”) for the year ended December
31, 2018. Both documents can be found on the Company’s
website at www.denisonmines.com or on SEDAR (at
www.sedar.com
)
and EDGAR (at
www.sec.gov/edgar.shtml
).
The highlights provided below are derived from these documents and
should be read in conjunction with them.
All amounts in this release are
in Canadian dollars unless otherwise stated.
David Cates, President and CEO of Denison
commented,
“The previous twelve
months have been transformational for Denison – highlighted
by the completion of a Pre-Feasibility Study, or PFS, on the
Company’s 90% owned Wheeler River project. The PFS
pairs the world’s lowest cost mining method for uranium,
in-situ recovery, with the world’s highest-grade undeveloped
uranium deposit, Phoenix, to produce a robust financial
result. Initial capital costs have been reduced significantly,
and the project’s pre-tax NPV is up ~175% - leading to
unanimous approval from the Company’s Board of Directors to
initiate the Environmental Assessment and Feasibility Study
processes in 2019.
Our team is energized with the success
of the Wheeler River PFS and focused on building the next uranium
mine in Saskatchewan’s Athabasca Basin region. We are
motivated by the prospect of Phoenix being the lowest cost uranium
mining operation in the world – with an estimated operating
cost of US$3.33/lb U
3
O
8
. At
this level, we are expecting to produce a near 90% operating margin
based on current spot prices. While we anticipate the uranium
market improving, the low-cost nature of this project provides us
with the ability to justify advancement today, despite the current
uranium price environment. Similarly we have the flexibility
advance the project without needing to build a book of long-term
uranium contracts. We can maintain full exposure to rising prices
and enter into contracts when we consider price conditions to be
attractive enough to justify doing so. The ability to move forward
under these conditions is quite unique for our industry and is
expected to deliver our shareholders superior leverage to an
anticipated recovery in both the spot and long-term price of
uranium in the coming years.”
PERFORMANCE HIGHLIGHTS
■
Wheeler River indicated mineral resources increased by 88% to 132
million pounds of U
3
O
8
On January 31, 2018, Denison announced an 88%
increase in the indicated mineral resources estimated for the
Wheeler River project (‘Wheeler River’), located in
northern Saskatchewan. The result was attributable to an increase
in the estimated resources at the Gryphon deposit, which is
estimated to contain, above a cut-off grade of 0.2%
U
3
O
8
,
61.9 million pounds of U
3
O
8
(1,643,000 tonnes at 1.71%
U
3
O
8
)
in indicated mineral resources, plus 1.9 million pounds of
U
3
O
8
(73,000 tonnes at 1.18%
U
3
O
8
)
in inferred mineral resources. Together with the resources
estimated for the Phoenix deposit, Wheeler River is now host to
132.1 million pounds of U
3
O
8
(1,809,000 tonnes at an average grade
of 3.3%) in total indicated mineral resources. Following the
resource update, Wheeler River retained and improved its standing
as the largest undeveloped high-grade uranium project in the
infrastructure rich eastern portion of the Athabasca Basin. The
updated mineral resource estimate was used in the preparation of
the Pre-Feasibility Study (‘PFS’).
■
Completion of the Wheeler River PFS with a project level pre-tax
NPV of $1.31 billion and IRR of 38.7%
On October 30, 2018, Denison filed a technical
report in accordance with NI 43-101 for Wheeler River. The PFS
results are highlighted by the selection of the in-situ recovery
('ISR') mining method for the Phoenix deposit, resulting in an
estimated average operating cost of $4.33 (USD$3.33) per pound
U
3
O
8
.
The project, on a 100% basis, is estimated to have mine production
of 109.4 million pounds of U
3
O
8
over a 14-year mine life, with a base
case pre-tax Net Present Value (‘NPV') of $1.31 billion (8%
discount rate), Internal Rate of Return ('IRR') of 38.7%, and
initial pre-production capital expenditures of $322.5 million. The
base-case NPV assumes uranium sales are made at UxC Consulting
Company, LLC’s annual estimated spot price (composite
mid-point scenario in constant dollars) for mine production from
the Phoenix deposit (from ~USD$29/lb U
3
O
8
to USD$45/lb U
3
O
8
),
and a fixed price for mine production from the Gryphon deposit
(USD$50/lb U
3
O
8
).
Upon the completion of the PFS and in accordance
with NI 43-101, Denison has declared probable mineral reserves of
109.4 million pounds of U
3
O
8
(Phoenix 59.7 million pounds
U
3
O
8
from 141,000 tonnes at 19.1%
U
3
O
8
,
and Gryphon 49.7 million pounds U
3
O
8
from 1,257,000 tonnes at 1.8%
U
3
O
8
),
indicated mineral resources (inclusive of reserves) of 132.1
million pounds of U
3
O
8
,
(1,809,000 tonnes at an average grade of 3.3%) and inferred mineral
resources of 3.0 million pounds of U
3
O
8
(82,000 tonnes at an average grade of
1.7% U
3
O
8
)
for Wheeler River.
■
Acquisition of additional Wheeler River ownership
interest
On October
26, 2018, Denison completed a transaction with Cameco Corporation
('Cameco') to increase its ownership interest in the Wheeler River
Joint Venture ('WRJV') to 90%. Denison acquired Cameco's 23.92%
interest in the project in exchange for the issuance of 24,615,000
common shares of Denison.
■
Approval of the advancement of Wheeler River
In December
2018, the Company’s Board of Directors, and the WRJV approved
the advancement of Wheeler River, following a detailed assessment
of the robust economic results demonstrated in the PFS. In support
of the decision to advance Wheeler River, the WRJV approved a $10.3
million budget for 2019 (100% basis), which is highlighted by plans
to initiate the Environmental Assessment (‘EA’)
process, the completion of ISR wellfield testing, as well as the
initiation of metallurgical pilot plant testing and other
engineering studies related to ISR mining.
■
Uranium mineralization discovered on regional explorations targets
at Wheeler River and Waterbury Lake
High-grade unconformity uranium northeast of Wheeler River's
Gryphon deposit
High-grade uranium drill intercepts were obtained
at the sub-Athabasca unconformity to the northeast of the Gryphon
deposit along the K North trend. Results were highlighted by assays
from drill hole WR-704, which included 1.4% U
3
O
8
over 5.5 metres, located 600 metres
northeast of Gryphon and drill hole WR-710D1, which included 1.1%
U
3
O
8
over 3.0 metres, located one kilometre
northeast of Gryphon. Further potential for mineralization exists,
both at the unconformity and within the basement, between the 200
metre-spaced drill fences.
Unconformity uranium and base metals on the K West trend at Wheeler
River
Highlights from the Company's summer 2018 diamond
drilling program at Wheeler River include the discovery of
unconformity-hosted mineralization on the K West trend, including
0.30% U
3
O
8
,
4.7% Co, 3.7% Ni and 0.55% Cu over one metre in drill hole
WR-733D1, and 1.2% Cu and 0.49% Ni over six metres in drill hole
WR-733D2. The K West trend is a priority target area located
approximately 500 metres west of the parallel K North trend, which
hosts the Gryphon deposit. The results are encouraging and further
drill testing is warranted to the south, where up to five
kilometres of strike length remains untested along the K West
trend.
Uranium mineralization on the GB Trend at Waterbury
Lake
Basement-hosted uranium mineralization was
intersected in two drill holes on the Waterbury Lake property
(65.92% Denison owned), at the interpreted intersection of the
regional Midwest structure with the GB trend, approximately three
kilometres northeast of the project's Huskie deposit. Mineralized
assay intervals included 0.43% U
3
O
8
over 1.0 metre (including 0.73%
U
3
O
8
over 0.5 metre) in drill hole
WAT18-478 and 0.45% U
3
O
8
over 0.5 metre, as well as 0.31%
U
3
O
8
over 0.5 metre and 0.20%
U
3
O
8
over 0.5 metre in drill hole
WAT18-479. The results validated the Company's geological concept
that uranium mineralization occurs at the intersection of the
interpreted regional Midwest structure with cross-cutting,
graphite-bearing, structural corridors. Follow-up is warranted
along the GB trend and at several other exploration targets related
to the interpreted regional Midwest structure.
■
Maiden mineral resource estimate completed for the Huskie deposit
at Waterbury Lake
Denison completed a maiden mineral resource
estimate for the Huskie uranium deposit (‘Huskie’) on
the Waterbury Lake property. The mineral resource estimate was
completed in accordance with NI 43-101 and CIM Definitions (2014),
and was reviewed and audited by SRK Consulting (Canada) Inc.
('SRK'), with a resulting estimate of 5.7 million pounds of
U
3
O
8
(above a cut-off grade of 0.1%
U
3
O
8
)
based on 268,000 tonnes of mineralization at an average grade of
0.96% U
3
O
8
.
Since its discovery in 2017, Denison has completed 28 drill holes
at Huskie at a spacing of approximately 50 metres x 50 metres to
define a basement hosted uranium deposit over a strike length of
approximately 210 metres and dip length of up to 215 metres. The
deposit has been interpreted to include three parallel, stacked
lenses of mineralization (Huskie 1, Huskie 2 and Huskie 3) which
vary in true thickness between approximately one and seven metres.
The effective date of the resource estimate is October 17,
2018.
■
Increase in mineral resources estimated for Midwest
On March 27, 2018, Denison reported an updated
mineral resource estimate for the Midwest Main and Midwest A
deposits located on the Midwest property (25.17% Denison owned),
which is operated by Orano Canada Inc. (‘Orano
Canada’). Inferred mineral resources for the property
increased by 13.5 million pounds of U
3
O
8
and currently total 18.2 million
pounds of U
3
O
8
(846,000 tonnes at 0.98%
U
3
O
8
)
above a cut-off grade of 0.1% U
3
O
8
.
Indicated mineral resources for the property increased by 2.1
million pounds of U
3
O
8
and currently total 50.7 million
pounds of U
3
O
8
(1,019,000 tonnes at 2.3%
U
3
O
8
)
above a cut-off grade of 0.1% U
3
O
8
.
■
Obtained financing for the Company’s 2019 Canadian
exploration activities
In November
2018, the Company completed a $5,000,000 bought deal private
placement equity offering for the issuance of 4,950,495 common
shares on a flow-through basis at a price of $1.01 per share. The
proceeds from the financing will be used to fund Canadian
exploration activities through to the end of 2019.
SELECTED ANNUAL FINANCIAL INFORMATION
(in
thousands, except for per share amounts)
|
|
Year ended
December 31,
2018
|
|
Year ended
December 31,
2017
|
|
|
|
|
|
Total
revenues
|
$
|
15,550
|
$
|
16,067
|
Net
loss
|
$
|
(30,077)
|
$
|
(19,454)
|
Basic and diluted
loss per share
|
$
|
(0.05)
|
$
|
(0.04)
|
(in
thousands)
|
|
As at
December 31,
2018
|
|
As at
December 31,
2017
|
|
|
|
|
|
Financial Position:
|
|
|
|
|
Cash and cash
equivalents
|
$
|
23,207
|
$
|
3,636
|
Investments in
debt instruments (GICs)
|
$
|
-
|
$
|
37,807
|
Cash, cash
equivalents and GICs
|
$
|
23,207
|
$
|
41,443
|
|
|
|
|
|
Working
capital
|
$
|
19,221
|
$
|
34,756
|
Property, plant
and equipment
|
$
|
258,291
|
$
|
249,002
|
Total
assets
|
$
|
312,187
|
$
|
326,300
|
Total long-term
liabilities
(1)
|
$
|
77,455
|
$
|
80,943
|
(1)
Predominantly comprised of
the non-current portion of deferred revenue, non-current
reclamation obligations, and deferred income taxes.
RESULTS OF CONTINUING OPERATIONS
Revenues
During 2018, the
McClean Lake mill processed 18 million pounds U
3
O
8
for the Cigar
Lake Joint Venture (‘CLJV’). The Company recorded toll
milling revenue of $4,239,000 and related accretion expense of
$3,314,000.
Revenue from the
Company’s Denison Environmental Services (‘DES’)
division was $9,298,000 and revenue from the Company’s
management contract with Uranium Participation Corporation
(‘UPC’) was $2,013,000 during 2018.
Effective January
1, 2018, upon adoption of IFRS 15, the accounting policy applicable
to the Company’s toll milling deferred revenue arrangement
with Anglo Pacific Group PLC (the ‘APG Transaction’)
has changed and the comparative period has been restated to reflect
this change. Refer to the Company’s consolidated financial
statements and related notes for more details on the accounting for
the APG Transaction related revenue.
Operating expenses
Operating
expenses in the Canadian mining segment include depreciation,
mining and other development costs, as well as adjustments, where
applicable, to the estimates of future reclamation costs in
relation to the companies mining properties. Operating expenses
during 2018 were $7,528,000 including $3,264,000 of depreciation
from the McClean Lake mill, which is associated with the processing
and packaging of U
3
O
8
for the CLJV.
Operating expenses include development and other operating costs
related to the McClean Lake Joint Venture (‘MLJV’) of
$3,893,000. These costs predominantly relate to the advancement of
the Surface Access Borehole Resource Extraction
(‘SABRE’) mining technology, as part of a multi-year
test mining program operated by Orano Canada within the MLJV.
During 2018, the SABRE team continued engineering and procurement
activities related to development of the mining equipment and high
pressure pumping systems. In addition, four access holes were
drilled and cased from surface to the top of the McClean North
deposit. The holes will allow for mining of the orebody during the
latter stages of the test mining program, currently scheduled to
occur in 2020.
Operating expenses at DES
during 2018 totaled $8,211,000 and relate primarily to care and
maintenance, and environmental consulting services provided to
clients, and includes labour and other costs.
Exploration and evaluation
During 2018, the
Company continued to focus on its highest priority projects in the
Athabasca Basin region in Saskatchewan. Denison’s share of
exploration and evaluation expenditures in 2018 was $15,457,000.
During 2018, the Company’s exploration and evaluation
expenditures decreased, primarily due to decreased exploration
activity at Wheeler River, partially offset by increased evaluation
activities at Wheeler River associated with the completion of the
PFS in 2018, as well as increased activities at certain exploration
pipeline properties, including the Hook Carter and Waterbury Lake
projects.
Wheeler River project:
During 2018,
Denison’s share of evaluation costs at Wheeler River amounted
to $3,130,000, which related to work on the PFS, as well as
environmental activities. Denison’s share of exploration
costs at Wheeler River amounted to $6,883,000 during the winter and
summer 2018 diamond drilling programs for a total of 39,555 metres
in 60 drill holes.
The Company also
continued with the community consultation and engagement process
– ensuring the continuous engagement of
stakeholders.
In 2018 the
Company also continued environmental baseline data collection in
key areas to better characterize the existing environment in the
project area. This data will form the foundation of the
environmental impact assessment for the project. The information
will also be used in the design of various aspects of the project,
including the location and layout of site infrastructure, the
location for treated effluent discharge and fresh water intake, and
the designs of water treatment plants, waste storage facilities,
and other project activities interacting with the
environment.
After careful
consideration of the PFS economic results, risks and opportunities
associated with permitting and concurrent advancement of project
engineering activities, the Company has decided to submit a Project
Description (‘PD’) and initiate the EA process in early
2019 for the Phoenix ISR project. The permitting process for the
Gryphon project will commence at a later date, in order to meet the
PFS plan for first production of Gryphon ore by 2030. This
staggered approach is expected to simplify the EA and permitting
process for the Phoenix project and reduce the capital required to
advance the project to a definitive development decision. Following
completion of the PFS, drafting of the PD was initiated with
submission of the document to federal and provincial authorities
occurring in February 2019.
Final assay
results from the winter and summer exploration drilling programs
were received in May 2018 and November 2018, respectively, and were
reported in Denison’s press release dated June 6, 2018 and
Denison’s third quarter MD&A dated November 12,
2018.
Further details
regarding Wheeler River, including the estimated mineral reserves
and resources and PFS, are provided in the Technical Report for the
Wheeler River project titled ‘Pre-feasibility Study Report
for the Wheeler River Uranium Project, Saskatchewan, Canada’
prepared by Mark Liskowich, P.Geo. of SRK Consulting (Canada) Inc.
with an effective date of September 24, 2018 (‘PFS Technical
Report’). A copy of this report is available on
Denison’s website and under its profile on each of SEDAR and
EDGAR.
Exploration pipeline properties:
While spending on
exploration pipeline projects has been reduced from prior year
levels, exploration activities continue to deliver encouraging
results generally warranting follow-up. During 2018, the Company
managed or participated in five other drilling exploration programs
(three operated by Denison) on the Company’s pipeline
properties, as reported in previous quarters, including Waterbury
Lake and Hook-Carter.
General and administrative expenses
Total general and
administrative expenses were $7,189,000 during 2018. These costs
are mainly comprised of head office salaries and benefits
(including stock based compensation), office costs in multiple
locations, audit and regulatory costs, legal fees, investor
relations expenses, and all other costs related to operating a
public company with listings in Canada and the United States, as
well as non-recurring project or legal costs.
Impairment of mineral properties
During 2018, the
Company recognized an impairment expense of $6,086,000, due to the
Company’s current intention to let claims on three of its
Canadian properties lapse in the normal course.
Other income and expenses
During 2018, the
Company recognized a loss of $5,865,000 in other income/expense.
The loss is predominantly due to losses on investments carried at
fair value of $5,411,000. Gains and losses on investments carried
at fair value are driven by the closing share price of the related
investee at end of the quarter. The loss recorded in 2018 was
mainly due to unfavourable mark-to-market adjustments on the
Company’s investments in common share purchase warrants of
GoviEx Uranium Inc. and common shares of Skyharbour Resources
Ltd.
Liquidity and capital resources
Cash and cash
equivalents were $23,207,000 at December 31, 2018.
In January, 2019,
the Company’s $24 million credit facility was amended and
extended to January 31, 2020. The credit facility is fully utilized
for non-financial letters of credit in relation to future
decommissioning and reclamation plans.
As at December
31, 2018, the Company has fulfilled its obligation to spend
$14,499,790 on eligible Canadian exploration expenditures as a
result of the issuance of the Tranche A and Tranche B flow-through
shares in March 2017.
As at December
31, 2018, the Company has spent $253,000 towards its obligation to
spend $5,000,000 on eligible Canadian exploration expenditures
under the flow-through share financing completed in November
2018.
Outlook for 2019
Denison’s
plans for 2019 continue to focus on the activities necessary to
position the Company as the next uranium producer in Canada.
Accordingly, the 2019 budget is focused on the advancement of
Wheeler River through the EA process and the necessary de-risking
ahead of the completion of a feasibility study.
(‘000)
|
|
2019 BUDGET
(2)
|
|
Canada Mining Segment
|
|
|
|
Mineral
Sales
|
|
970
|
|
Development &
Operations
|
|
(3,640)
|
|
Mineral Property
Exploration & Evaluation
|
|
(12,350)
|
|
|
|
(15,020)
|
|
DES Segment
|
|
|
|
DES Environmental
Services
|
|
1,520
|
|
|
|
1,520
|
|
Corporate and Other Segment
|
|
|
|
UPC Management
Services
|
|
1,920
|
|
Corporate
Administration & Other
|
|
(5,170)
|
|
|
|
(3,250)
|
|
Total
(1)
|
|
$ (16,750)
|
|
Notes:
1.
Only material operations
shown.
2.
The budget is prepared on a
cash basis.
Mineral Sales
Denison’s
revenue from the sale of approximately 26,000 pounds of
U
3
O
8
currently held in
inventory, is budgeted to be $1.0 million.
Development & Operations
In 2019,
Denison’s share of operating and capital expenditures at the
Orano Canada operated McClean Lake and Midwest joint ventures are
budgeted to be $2.6 million. The large majority of the operating
expenditures relate to McClean, including $2.3 million in respect
of Denison’s share of the 2019 budget for the advancement of
the SABRE mining method. The 2019 SABRE program includes the
engineering and fabrication of the mining equipment and pipe to be
used during the test mining process. In order to accommodate the
time required to complete this process, the test mining activities
originally planned by Orano Canada for 2019 have been delayed until
2020.
The 2019
operating expenditures are also expected to include $800,000 for
reclamation expenditures related to Denison’s legacy mine
sites in Elliot Lake.
Mineral Property Exploration & Evaluation
The budget for
exploration and evaluation activities in 2019 is approximately
$12.4 million (Denison’s share). Including partner’s
share of expenses, the projected 2019 exploration and evaluation
work program is budgeted to be $13.4 million. The exploration
program is expected to include approximately 25,000 metres of
drilling across three of Denison’s high priority projects,
namely Wheeler River, Waterbury Lake and Hook Carter. The majority
of the exploration activity will occur during the winter months,
resulting in higher levels of expenditures in the first quarter of
2019. See Denison’s press release dated January 9, 2019 for
further details regarding the 2019 exploration
program.
Evaluation
activities are expected to continue at Wheeler River throughout the
year.
Wheeler River
A
$10.3 million budget (100% basis) has been approved for Wheeler
River. The budget includes exploration expenditures of $3.2 million
and evaluation expenditures of $7.1 million. Denison’s share
of the budget is expected to be $9.3 million, consistent with the
Company’s 90% ownership interest.
Evaluation
The
2019 evaluation program includes the initiation of the EA process,
as well as engineering studies and related programs required to
advance the high-grade Phoenix deposit as an ISR mining operation.
Engineering studies during 2019 will include ISR wellfield testing,
the initiation of metallurgical IRS pilot plant testing, Gryphon
optimization studies, and third party reviews of the Phoenix
engineering plans. In addition, following the submission of a PD in
February 2019 to the Federal and Provincial regulatory authorities,
the multi-year EA, consultation, and permitting process for the
project has been initiated.
Exploration
Following
the completion of the PFS in the third quarter of 2018, and given
the highly encouraging results from the proposed Phoenix ISR
operation, the planned 2019 exploration drilling program will be
focused on initial testing of regional targets at the sub-Athabasca
unconformity, with the potential to discover additional ISR
amenable uranium deposits. Potential for basement hosted uranium
mineralization will not be ignored where opportunities also exist
to evaluate prospective basement targets. High priority regional
target areas planned for testing in 2019 include K West, M Zone, K
South, Gryphon South, Q South (East), and O Zone.
The
2019 Wheeler River exploration budget includes approximately 13,500
metres of diamond drilling in 23 holes. Drilling activities
commenced early January 2019 for the winter season, which will be
followed by a results-driven summer drilling program –
providing a staged-approach to target evaluation.
Exploration Pipeline Properties
Denison remains
active on high potential exploration pipeline projects – each
assessed to have the potential to deliver a meaningful discovery of
new uranium mineralization.
Denison-Operated Projects
Exploration drill
programs, to be operated by Denison, are planned on the Waterbury
Lake and Hook Carter projects during the winter of
2019.
The 2019
Waterbury Lake budget totals $1.8 million (100% basis) which
includes approximately 7,300 metres of diamond drilling in 18
holes. The results-driven drilling program is expected to be
completed during the winter season, and will be funded by Denison,
as KWULP has elected to continue to dilute their interest in the
project.
A $1.4 million
(100% basis) diamond drilling program, consisting of approximately
3,900 metres in 6 holes, is planned for winter 2019. The program is
designed to complete the first phase of reconnaissance exploration
along 7.5 kilometres of the Patterson Corridor. The 2019
exploration program will be funded 100% by Denison as part of its
agreement to fund ALX's 20% share of the first $12 million in
expenditures on the project (see Denison’s Press Releases
dated October 13 and November 7, 2016).
Non-Operated Projects
Denison has
elected not to fund its 14.4% share of the $1.6 million diamond
drilling program planned for the Waterfound River Project in 2019.
The Waterfound River project is a joint venture between Orano
Canada (53.98%), JCU (31.60%) and Denison (14.42%). Orano Canada is
the operator of the project.
Management and Environmental Services
Net management
fees for 2019 from the management services agreement with UPC are
budgeted at $1.9 million. A portion of the management fees earned
from UPC are based on UPC’s net asset value, and are
therefore dependent upon the uranium spot price. Denison’s
budget for 2019 assumes a uranium spot price of USD$28.75 per pound
U
3
O
8
. Each USD$2 per
pound U
3
O
8
increase is
expected to translate into approximately $0.1 million in additional
management fees to Denison. While the term of the management
services agreement with UPC ends March 31, 2019, the 2019 budget
has been prepared with the assumption that the contract will be
renewed.
Revenue from
operations at DES during 2019 is budgeted to be $10.0 million, with
operating, overhead, and capital expenditures budgeted to be $8.5
million, resulting in a net contribution of approximately $1.5
million.
Corporate Administration and Other
Corporate
administration expenses are budgeted to be $5.2 million in 2019 and
include head office salaries and benefits, office costs, audit and
regulatory costs, legal fees, investor relations expenses and all
other costs related to operating a public company with listings in
Canada and the United States.
In addition to
corporate administration expenses in 2019, letter of credit and
standby fees relating to the 2019 Credit Facility are expected to
be approximately $400,000, which is expected to be more than offset
by interest income on the Company’s cash and short-term
investments.
ABOUT DENISON
Denison Mines
Corp. was formed under the laws of Ontario and is a reporting
issuer in all Canadian provinces. Denison’s common shares are
listed on the Toronto Stock Exchange (the ‘TSX’) under
the symbol ‘DML’ and on the NYSE American (formerly
NYSE MKT) exchange under the symbol ‘DNN’.
Denison is a
uranium exploration and development company with interests focused
in the Athabasca Basin region of northern Saskatchewan, Canada. In
addition to its 90% owned Wheeler River project, which hosts the
high grade Phoenix and Gryphon uranium deposits, Denison's
exploration portfolio consists of numerous projects covering
approximately 320,000 hectares in the Athabasca Basin region.
Denison's interests in Saskatchewan also include a 22.5% ownership
interest in the MLJV, which includes several uranium deposits and
the McClean Lake uranium mill, which is currently processing ore
from the Cigar Lake mine under a toll milling agreement, plus a
25.17% interest in the Midwest deposits and a 65.92% interest in
the J Zone and Huskie deposits on the Waterbury Lake property. The
Midwest, J Zone and Huskie deposits are located within 20
kilometres of the McClean Lake mill.
Denison is
engaged in mine decommissioning and environmental services through
its DES division, which manages Denison’s Elliot Lake
reclamation projects and provides post-closure mine and maintenance
services as well as environmental consulting services to a variety
of industry and government clients.
Denison is also
the manager of UPC, a publicly traded company listed on the TSX
under the symbol ‘U’, which invests in uranium oxide in
concentrates (‘U
3
O
8
’) and
uranium hexafluoride (‘UF
6
’).
Qualified Persons
The disclosure
regarding the estimated Mineral Reserves, 2016 PEA, PFS, and
environmental and sustainability activities for the Wheeler River
project was reviewed and approved by Peter Longo, P. Eng, MBA, PMP,
Denison’s Vice-President, and Project Development, who is a
Qualified Person in accordance with the requirements of NI
43-101.
The balance of
the disclosure of scientific and technical information regarding
Denison’s properties in this news release, including
estimated Mineral Resources, was prepared or approved by Dale
Verran, MSc, P. Geo, Pr.Sci.Nat., the Company’s Vice
President, Exploration, a Qualified Person in accordance with the
requirements of NI 43-101. For a description of Denison’s
assay procedures, downhole gamma probe procedures, and the quality
assurance program and quality control measures applied by Denison,
please see Denison’s Annual Information Form dated March 27,
2018 available under Denison's profile on SEDAR at www.sedar.com,
and its Form 40-F available on EDGAR at
www.sec.gov/edgar.shtml
.
For more information, please contact
David
Cates
|
(416) 979-1991
ext 362
|
President and
Chief Executive Officer
|
|
|
|
Sophia
Shane
|
(604)
689-7842
|
Investor
Relations
|
|
|
|
Follow Denison on
Twitter
|
@DenisonMinesCo
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
Certain
information contained in this news release constitutes
‘forward-looking information’, within the meaning of
the applicable United States and 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’, ‘budget’,
‘scheduled’, ‘estimates’,
‘forecasts’, ‘intends’,
‘anticipates’, or ‘believes’, or the
negatives and/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’.
In particular,
this news release contains forward-looking information pertaining
to the following: the benefits to be derived from corporate
transactions; the estimates of Denison's mineral reserves and
mineral resources, including the new mineral resource estimate for
the Huskie deposit; exploration, development and expansion plans
and objectives, including the results of the PFS, and statements
regarding anticipated budgets, fees and expenditures; expectations
regarding Denison’s joint venture ownership interests and the
continuity of its agreements with its partners; expectations
regarding adding to its mineral reserves and resources through
acquisitions or exploration; expectations regarding the toll
milling of Cigar Lake ores; expectations regarding revenues and
expenditures from operations at DES; expectations regarding
revenues from the UPC management contract; and the annual operating
budget and capital expenditure programs, estimated exploration and
development expenditures and reclamation costs and Denison's share
of same. 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.
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 accurate and results may differ materially from
those anticipated in this forward-looking information. For a
discussion in respect of risks and other factors that could
influence forward-looking events, please refer to the factors
discussed in Denison’s Annual Information Form dated March
27, 2018 under the heading ‘Risk Factors’. These
factors are not, and should not be construed as being
exhaustive.
Accordingly,
readers should not place undue reliance on forward-looking
statements. The forward-looking information contained in this news
release is expressly qualified by this cautionary statement. Any
forward-looking information and the assumptions made with respect
thereto speaks only as of the date of this news release. Denison
does not undertake any obligation to publicly update or revise any
forward-looking information after the date of this news 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 Mineral
Resources and Probable Mineral Reserves:
This news release
may use the terms 'measured', 'indicated' and 'inferred' mineral
resources. United States investors are advised that while such
terms have been prepared in accordance with the definition
standards on mineral reserves of the Canadian Institute of Mining,
Metallurgy and Petroleum referred to in Canadian National
Instrument 43-101 Mineral Disclosure Standards ("NI 43-101") and
are recognized and required by Canadian regulations, the United
States Securities and Exchange Commission ("SEC") 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.
The estimates of
mineral reserves in this news release have been prepared in
accordance with NI 43-101. The definition of probable mineral
reserves used in NI 43-101 differs from the definition used by the
SEC in the SEC's Industry Guide 7. Under the requirements of
the SEC, mineralization may not be classified as a "reserve" unless
the determination has been made, pursuant to a "final" feasibility
study that the mineralization could be economically and legally
produced or extracted at the time the reserve determination is
made. Denison has not prepared a feasibility study for the purposes
of NI 43-101 or the requirements of the SEC. Accordingly,
Denison's probable mineral reserves disclosure may not be
comparable to information from U.S. companies subject to the
reporting and disclosure requirements of the
SEC.