Denison Mines
Corp.
Annual General
Meeting of Shareholders
Thursday, May
2, 2019
Notice of Meeting
&
Management
Information Circular
Dated March 20,
2019
Dear Denison
Shareholder,
On behalf of the
Board of Directors, I would like to invite you to attend
Denison’s annual general meeting of shareholders on Thursday,
May 2, 2019 at the offices of Blake, Cassels & Graydon LLP, 199
Bay Street, Suite 4000, Commerce Court West, Toronto, Ontario,
Canada.
It is important to vote your shares.
The
attached Management Information Circular contains important
information about the meeting, how you can vote, the nominated
directors, governance of the Company and the compensation of
Denison’s executives and directors.
|
You will see that there have been some exciting
changes for our Board in 2019. Catherine Stefan was appointed the
Chair of the Board and Jack Lundin, Patricia Volker and myself were
welcomed as new additions, joining Bob Dengler, Brian Edgar, Ron
Hochstein and William Rand – each of whom are standing for
re-election. Mr. Seo has recently stepped down from the Board due
to a change in his responsibilities at Korea Hydro Nuclear Power
(“KHNP”), a strategic shareholder in the Company, and
we are pleased to welcome Mr. Geun Park, who was nominated by KHNP
as his highly qualfied replacement.
Over the past 12 months, Denison has transformed
its view of the path forward for the Company’s 90% owned
flagship asset, Wheeler River, which is the largest undeveloped
high-grade uranium project located in the infrastructure rich
eastern portion of the Athabasca Basin. In October 2018, Denison
completed a Pre-Feasibility Study for the project, including the
selection of the low-cost and environmentally friendly In-Situ
Reovery (“ISR”) mining method for the Phoenix deposit.
The results suggest that the Phoenix deposit could be the lowest
cost uranium mining operation in the world. Accordingly, in late
2018, the Company approved the advancement of Wheeler River into
the environmental assessment and feasibility study processes,
ultimately moving the company closer to a development
decision.
The management team continues
to focus Denison’s activities on our core assets and to
strategically position Denison as a high leverage Canadian focused
uranium development company, poised to become Canada’s next
uranium producer
.
|
|
What’s
Inside
Notice of Meeting
Management Information Circular…
1
Business of the
Meeting.….…
5
●
Receiving the
Consolidated Financial Statements
●
Reappointment of the
Auditor
●
Election of
Directors
● Non-binding Advisory Vote on Executive
Compensation
Denison’s Corporate Governance Practices.......
14
Director
Compensation.......
23
Executive
Compensation........
28
Equity Compensation
Plans.......
43
●
Option
Plan
●
Share Unit Plan
Additional Information........
48
Appendices:
A. Board of Directors'
Mandate......
49
|
The Board of
Directors and I thank you for your continued support and interest
in Denison.
Sincerely,
David
Cates,
Director,
President & Chief Executive Officer
Denison Mines
Corp.
March 20,
2019
NOTICE OF
ANNUAL GENERAL MEETING OF SHAREHOLDERS
You are invited
to Denison Mine Corp.’s Annual General Meeting of
Shareholders.
|
When
|
Where
|
|
Thursday, May 2,
2019
9:00 a.m.
Reception
9:30 a.m.
Meeting
|
The offices of
Blake, Cassels & Graydon LLP
199 Bay Street
Suite 4000
Commerce Court
West
Toronto, Ontario
M5L 1A9
|
The purpose of
the Meeting is:
(a) to
receive the consolidated financial statements of Denison Mines
Corp. for the year ended December 31, 2018, along with the
auditor’s report on the statements;
(b) to
reappoint the auditor for the upcoming year and to authorize the
directors to fix the remuneration of the auditor;
(c) to elect
nine directors to the Board for the upcoming year;
(d) to
consider a non-binding advisory resolution on the Company’s
approach to executive compensation; and
(e) to
transact such other business as may properly come before the
Meeting.
Your vote is
important. If you held shares in Denison Mines Corp. on March 13,
2019, you are entitled to receive notice of and vote at this
Meeting or any postponement or adjournment of it.
This notice is
accompanied by the Management Information Circular which describes
who can vote, how to vote, and what the Meeting will
cover.
The 2018 Annual
Report, including the audited consolidated financial statements and
related management’s discussion and analysis for the year
ended December 31, 2018, has been
mailed to those shareholders who
requested a copy. This information is also available on
Denison’s website at
www.denisonmines.com
, on the
System for Electronic Document Analysis and Retrieval
(“
SEDAR
”) at
www.sedar.com
, on
the Electronic Data Gathering, Analysis, and Retrieval system
(“
EDGAR
”) of the
United States Securities and Exchange Commission at
www.sec.gov/edgar
or by request
to the Corporate Secretary of the Company at 1100 - 40 University
Avenue, Toronto, Ontario M5J 1T1.
As described in
the “notice and access” notification mailed to
shareholders of the Company, Denison has opted to deliver its
Meeting materials to shareholders by posting them on its website at
www.denisonmines.com
. The use
of this alternative means of delivery is more environmentally
friendly and more economical as it reduces the Company’s
paper and printing use and the Company’s printing and mailing
costs.
2019 D
ENISON
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EETING
The Meeting
materials will be available on the Company’s website on March
26, 2019 and will remain on the website for one full year. The
Meeting materials will also be available on SEDAR at
www.sedar.com
and on EDGAR at
www.sec.gov/edgar
on March 26, 2019.
Shareholders who
wish to receive paper copies of the Meeting materials prior to the
meeting may request copies from the Company by calling
1-888-689-7842 or by sending an email to
info@denisonmines.com
no
later than April 23, 2019.
If you are not
able to attend the Meeting, please vote by using the proxy form or
voting instruction form included with the “notice and
access” notification and return it before 9:30 a.m. (Eastern
Time) on April 30, 2019 in accordance with the instructions
provided.
Yours
truly,
David
Cates
Director,
President & Chief Executive Officer
Dated March 20,
2019
2019 D
ENISON
N
OTICE OF
M
EETING
MANAGEMENT
INFORMATION CIRCULAR
ABOUT THIS
CIRCULAR
You have received
this Circular because you owned shares of Denison Mines Corp. on
March 13, 2019, the record date. As a Shareholder, you have the
right to attend and vote, in person or by proxy, at the Annual
General Meeting of Shareholders on May 2, 2019 (the
“
Meeting
”).
Management is
soliciting your proxy for the Meeting.
Management’s
solicitation is being made by mail and electronic means, at
Denison’s expense. Proxies may also be solicited personally
or by telephone by directors, officers, employees and agents of the
Company.
The Board of Directors has approved the contents
of this document and has directed management to make it available
to you. The information in the Circular is given as of March 20,
2019 unless otherwise noted.
|
In this Circular,
Denison
or
the Company
means Denison Mines
Corp.,
Shareholders
means holders of
Denison’s common shares and
Shares
means Denison’s common
shares.
|
This Circular
provides the information that you need to vote at the
Meeting.
●
If you are a registered
holder of Shares, you have been sent a proxy form that you can use
if you choose not to vote at the Meeting.
●
If your Shares are held by a
nominee, you may receive either a proxy form or voting instruction
form and should follow the instructions provided by the
nominee.
All amounts stated in this Circular are in Canadian dollars, unless
otherwise indicated. References to “USD$” mean United
States dollars.
VOTING
YOUR DENISON SHARES
Registered Shareholders
If you were a
registered Shareholder on the record date, you may vote in person
at the Meeting or give another person authority to represent you
and vote your Shares at the Meeting, as described below under
“Voting by Proxy
”
.
Non-Registered Shareholders
Your Shares may
not be registered in your name but in the name of a nominee, which
is usually a trust company, securities broker or other financial
institution. If your Shares are registered in the name of a
nominee, you are a non-registered Shareholder. Your nominee is
entitled to vote the Shares held by it on the record date. Your
nominee is required to seek your instructions as to how to vote
your Shares. You may vote your Shares through your nominee or in
person
.
To vote your
Shares through your nominee, you should follow the instructions of
your nominee with respect to the procedures to be followed for
voting. Generally, nominees will provide non-registered
Shareholders with either: (a) a voting instruction form for
completion and execution by you, or (b) a proxy form, executed by
the nominee and restricted to the number of Shares owned by you,
but otherwise uncompleted. These procedures are to permit
non-registered Shareholders to direct the voting of the Shares that
they beneficially own.
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If you are a
non-registered Shareholder and would like to vote your Shares in
person at the Meeting, you should take the following
steps:
1. appoint
yourself as the proxyholder by writing your own name in the space
provided on the voting instruction form or proxy form,
and
2. follow
the nominee’s instructions for return of the executed form or
other method of response.
Do not otherwise complete the form.
Your vote, or your designate’s vote, will be taken at the
Meeting.
There are two
kinds of non-registered Shareholders (i) those who object to their
name being made known to the issuers of securities which they own,
known as objecting beneficial owners or “
OBOs
” and (ii) those who do not
object to their name being made known to the issuers of securities
they own, known as non-objecting beneficial owners or
“
NOBOs
”.
In accordance
with the requirements of National Instrument 54-101 of the Canadian
Securities Administrators, Denison has elected to send the notice
of meeting, this Circular and proxy form (collectively, the
“
Meeting
Materials
”) indirectly to the NOBOs.
Denison intends
to pay for intermediaries such as stockbrokers, securities dealers,
banks, trust companies, trustees and their agents and nominees
(“
Intermediaries
”) to forward the
Meeting Materials to OBOs.
Voting by Proxy
If you will not
be at the Meeting or do not wish to vote in person, we still
encourage you to vote by using the proxy form or voting instruction
form provided. A proxy must be in writing and must be executed by
you or by your attorney authorized in writing, unless you have
chosen to complete your proxy by telephone or the Internet, as
described on the proxy form or voting instruction form
provided.
Your Proxy Vote and Appointing a Proxyholder
On the proxy
form, you can indicate how you want to vote your Shares or you can
let your proxyholder decide for you.
All Shares
represented by properly completed proxies received at the Toronto
office of Computershare Investor Services Inc.
by 9:30 a.m. (Eastern time) on April 30,
2019
or not less than 48 hours (excluding Saturdays, Sundays
and holidays) before any adjourned or postponed Meeting will be
voted or withheld from voting at the Meeting. Proxies should be
delivered to:
Computershare
Investor Services Inc. Toronto Office, Proxy
Department
100 University
Avenue
8th
Floor
Toronto, Ontario,
Canada M5J 2Y1
For more
information on how to vote, Shareholders may contact Computershare
by telephone at 1-800-564-6253 or by e-mail to
service@computershare.com.
If you give
directions on how to vote your Shares, your proxyholder must vote
(or withhold from voting) your Shares according to your
instructions, including on any ballot votes that take place at the
Meeting. If you have not specified how to vote on a particular
matter, then your proxyholder can vote your Shares as he or she
sees fit. Your proxy authorizes the proxyholder to vote and act for
you at the Meeting, including any continuation after an adjournment
of the Meeting.
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A proxyholder is the person
you appoint to act on your behalf at the Meeting and to vote your
Shares.
You may choose anyone to be
your proxyholder, including someone who is not a Shareholder of
Denison.
Simply fill in the name in the blank space provided
on the enclosed proxy form. If you leave the space in the proxy
form blank, the persons designated in the form, who are officers of
Denison, are appointed to act as your proxyholder.
If you have not specified whether or how to
vote on a particular matter and the persons designated in the form
are appointed as your proxyholder, your Shares will be voted as
follows:
●
FOR
the reappointment of
PricewaterhouseCoopers LLP as independent auditor until the next
Annual Meeting of Shareholders and the authorization of the Board
of Directors to fix its remuneration;
●
FOR
the election as directors of all
nominees listed in this Circular; and
●
FOR
the non-binding advisory vote on
executive compensation.
Revoking Your Proxy
If you are a
registered Shareholder who has given a proxy, you may revoke it by
delivering a written notice, stating that you want to revoke your
proxy to: The Corporate Secretary, Denison Mines Corp., 1100 - 40
University Avenue, Toronto, Ontario, Canada M5J 1T1 not less than
48 hours (excluding Saturdays, Sundays and holidays) before the
time of the Meeting, or by attending the Meeting and notifying the
Chair of the Meeting prior to the commencement of the Meeting that
you have revoked your proxy. A registered Shareholder may also
revoke its proxy by completing and signing a proxy bearing a later
date and depositing it with Computershare, provided it is received
not less than 48 hours (excluding Saturdays, Sundays and holidays)
before the time of the Meeting.
The notice can be
from you or your attorney, if he or she has your written
authorization. If the Shares are owned by a corporation, the
written notice must be from its authorized officer or
attorney.
Additional Matters Presented at the Meeting
The proxy form or
voting instruction form provided confers discretionary authority
upon the persons named as proxies with respect to any amendments or
variations to the matters identified in the Notice of Meeting and
with respect to other matters which may properly come before the
Meeting.
If you sign and
return the proxy form and any matter is presented at the Meeting in
addition, as an amendment or a variation to the matters described
in the Notice of Meeting, the Denison officers named as proxies
will vote in their best judgment. When this Circular went to press,
Denison’s management was not aware of any matters to be
considered at the Meeting other than the matters described in the
Notice of Meeting or any amendments or variations to the matters
described in the Notice.
ELECTRONIC DELIVERY OF DOCUMENTS
Every year, as
required by laws governing public companies, the Company delivers
documentation to shareholders. In order to make this process more
convenient, Shareholders may choose to be notified by email when
the Company’s documentation, including the Meeting materials,
is posted on the Company’s website (
www.denisonmines.com
) and,
accordingly, such documentation will not be sent in paper form by
mail other than as required by applicable laws.
Delivery in an
electronic format, rather than paper, reduces costs to the Company
and benefits the environment. Shareholders who do not consent to
receive documentation through email notification will continue to
receive such documentation by mail or otherwise, in accordance with
securities laws. By consenting to electronic delivery,
Shareholders:
(i)
agree to receive all
documents to which they are entitled electronically, rather than by
mail; and
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(ii)
understand that access to the
Internet is required to receive a document electronically and
certain system requirements must be installed (currently Adobe
Acrobat Reader to view Adobe’s portable document format
(“
PDF
”)). Such
documents may include the interim consolidated financial reports,
the annual report (including audited annual consolidated financial
statements and management’s discussion and analysis
(“
MD&A
”)),
the notice of annual and/or special meeting and related management
information circular and materials, and other corporate information
about the Company.
At any time, Denison may
elect to not send a document electronically, or a document may not
be available electronically. In either case, a paper copy will be
mailed to Shareholders.
Registered Shareholders can
consent to electronic delivery by completing and returning the form
of consent included with the form of proxy. Non-registered
Shareholders can consent to electronic delivery by completing and
returning the appropriate form received from the applicable
intermediary.
|
|
Shareholders may request
copies of the Meeting materials by mail at no cost for up to one
year from the date the Information Circular was filed on SEDAR by
email to info@denisonmines.com or by calling 1-888-689-7842. For
Shareholders who wish to receive copies of the Circular in advance
of the voting deadline, requests must be received
no later than April 23,
2019.
|
Shareholders are
not required to consent to electronic delivery. The Company will
notify consenting Shareholders at the email address provided by the
Shareholder on the form of proxy when the documents that the
Shareholder is entitled to receive are posted on the
Company’s website, with a link to the specific pages of the
website containing the PDF document.
NOTICE AND
ACCESS
The Company
delivers its Meeting materials to Shareholders by posting them on
its website at
www.denisonmines.com
, rather
than mailing physical copies of the materials to all Shareholders.
The Meeting materials will be available on the Company’s
website on March 26, 2019 and will remain on the website for one
full year. The Circular will also be available on March 26, 2019 on
the System for Electronic Document Analysis and Retrieval
(“
SEDAR
”) at
www.sedar.com
and
on the Electronic Data Gathering, Analysis, and Retrieval system
(“
EDGAR
”) of the
United States Securities and Exchange Commission at
www.sec.gov/edgar
.
The Company has
decided to mail paper copies of the Circular to those registered
and non-registered Shareholders who had previously elected to
receive paper copies of the Company’s Meeting materials. All
other Shareholders will receive a “notice and access”
notification which will contain information on how to obtain
electronic and paper copies of the Circular in advance of the
Meeting and for a full year following the Meeting.
VOTING
SECURITIES
Denison’s
Shares are the only shares issued by the Company. On March 13,
2019, the record date for the Meeting, the Company had 589,128,908
Shares issued and outstanding, and all of these Shares are entitled
to be voted at the meeting. Each Share entitles the holder to one
vote on all matters at the Meeting.
In accordance
with the provisions of the
Business Corporations Act
(Ontario)
(the “
OBCA
”),
the Company prepared a list of Shareholders on the record date of
March 13, 2019. Each Shareholder named on the list will be entitled
to vote at the Meeting the Shares shown on the list opposite his or
her name.
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Principal
Holders of Shares
To the knowledge
of Denison’s directors and executive officers, no person or
company beneficially owns or exercises control or direction over,
directly or indirectly, more than 10% of Denison’s Shares as
at March 13, 2019.
Interest of Certain Persons or Companies in Matters to be Acted
Upon
No director or
executive officer
or any person
who has held such a position since January 1, 2018, nor any
associate or affiliate of the foregoing persons,
has any
material interest, direct or indirect, by way of beneficial
ownership of securities or otherwise, in matters to be acted upon
at the Meeting other than their election pursuant to the election
of directors, as applicable.
BUSINESS
OF THE MEETING
The purpose of
the Meeting is:
(a) to
receive the consolidated financial statements of Denison Mines
Corp. for the year ended December 31, 2018,
along with the auditor’s report on the
statements
;
(b) to
reappoint the auditor for the upcoming year and to authorize the
directors to fix the remuneration of the auditor;
(c) to elect
nine directors to the Board for the upcoming year;
(d) to
consider a non-binding advisory resolution on the Company’s
approach to executive compensation; and
(e) to
transact such other business as may properly come before the
Meeting.
Receiving
the Consolidated Financial Statements
The consolidated
financial statements of the Company for the fiscal year ended
December 31, 2018 are included in Denison’s 2018 Annual
Report, which has been mailed to the Company’s registered and
non-registered Shareholders who requested it. The 2018 Annual
Report is also available on Denison’s website at
www.denisonmines.com
, on SEDAR
at
www.sedar.com
and on EDGAR at
www.sec.gov/edgar.shtml
.
Management will
be available to discuss Denison’s consolidated financial
results at the Meeting, and Shareholders and proxyholders in
attendance will be given an opportunity to discuss these results
with management. No vote of Shareholders is required with respect
to this item of business.
The Reappointment of the Auditor
The Board
recommends the re-appointment of PricewaterhouseCoopers LLP
(“
PwC
”) as the
Company’s independent auditor to hold office until the end of
the next annual meeting of shareholders, with the directors to fix
the remuneration to be paid to PwC for their services.
You may either
vote
for
reappointing PwC
as Denison’s auditor to hold office until the end of the next
annual meeting, and authorizing the directors to fix the
auditors’ remuneration, or you can
withhold
your vote.
Unless otherwise instructed, the named
proxyholders will vote FOR reappointing PwC and authorizing the
directors to fix PwC’s remuneration.
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The
Election of Directors
The term of
office of each of the present directors of the Company expires at
the Meeting. The Board has nominated nine directors to be elected
at the Meeting, to serve as a director until the next annual
meeting unless he or she resigns or is otherwise removed from
office earlier.
All of the proposed nominees are currently
directors of Denison and have been directors since the dates
indicated below.
Each of the nominated directors is eligible
to serve as a director and has expressed his or her willingness to
do so.
Unless otherwise instructed, proxies and voting
instructions given pursuant to this solicitation by Denison’s
management will be voted FOR the election of the proposed
nominees
. If any proposed nominee is unable to serve as a
director or withdraws his or her name, the named proxyholders
reserve the right to nominate and vote for another individual in
their discretion.
Denison’s
Board recognizes that the quality of its directors is an important
factor in the overall success of the Company. Denison is committed
to ensuring that its Board is composed of members who have the
competencies, capabilities and diversity required to understand
Denison’s business, along with the integrity and motivation
required to properly discharge their fiduciary duties in the long
term best interests of the Company and all of its
Shareholders.
When considering
the Board as a whole and assessing directors’ candidacy for
the Board, the Corporate Governance and Nominating Committee
follows its established guidelines for the Board’s
composition, including its Diversity Policy (see
“Denison’s Corporate Governance Practices –
Diversity within Denison” on page 16 for a summary) and its
“
Guidelines for the
Composition of Denison’s Board
”, and seeks
directors that have some or all of the following
attributes:
●
Financial accreditation
and/or financial literacy
●
Sound business experience and
expertise
●
Corporate governance
experience
●
Industry specific experience
and knowledge, including mining and metallurgy and occupational
health and safety
●
Sustainability knowledge,
including stakeholder engagement and environmental
management
●
Experience in government
relations, operations and regulatory issues
●
Financing and
merger/acquisition experience
●
Strong reputation within the
financial and business communities
●
Candidacy consistent with the
Diversity Policy and the targets set thereunder
●
Strong board skills, such as
integrity, networking abilities, interpersonal skills, ability to
think strategically and act independently
●
Independence, as such term is
defined by the Canadian Securities Administrators
When determining
nominees for election, the Board also considers the strategic
relationship agreement with KHNP Canada (the “
KHNP SRA
”). Under the KHNP SRA,
the Board must nominate one person designated by KHNP Canada for
election as a director at any Shareholder meeting where directors
are to be elected, so long as KHNP Canada or an affiliate holds
over 5% of the outstanding Shares. KHNP Canada has designated Mr.
Geun Park as its nominee.
According to the
Company’s by-laws, the Company must receive advance notice of
nominations of directors by Shareholders. As at the date of this
Circular, the Company has not received notice of any director
nominations in connection with this year’s Meeting.
Accordingly, the only persons currently nominated for election to
the Board at the Meeting are the following nominees.
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Profiles of the Nominated Directors
|
The tables below set forth information about
each nominated director as of March 20, 2019, including his or her
background and experience, main areas of expertise, other exchange
listed company boards of which he or she is a member and his or her
equity holdings in the Company. Each director has provided the
information about the securities that he or she owns or over which
he or she exercises control or direction.
|
|
The
Board has adopted a Share ownership requirement. Generally, within
5 years of joining the Board, Non- employee directors must own
Shares with a cost of acquisition equal to three times the value of
their annual retainers. The Board exempted nominees of KHNP Canada
from this requirement.
|
|
David D.
Cates, 36
Toronto, ON
Canada
Shares:
500,000
Options:
4,067,564
Share Units:
1,507,000
|
Mr. Cates was
appointed President & CEO of Denison in 2015 and has also
served as Vice President Finance, Tax & Chief Financial Officer
as well as Director, Taxation during his tenure with the Company,
which began in 2008. Mr. Cates also serves on the board of
directors of the Canadian Nuclear Association, a non-profit
organization representing the nuclear industry in Canada. Mr. Cates
is a Chartered Professional Accountant (CPA, CA) and holds Master
of Accounting (MAcc) and Honours Bachelor of Arts (BA) degrees from
the University of Waterloo.
Mr. Cates also
sits on the board of directors of GoviEx Uranium Inc. (TSX-V: GXU),
Skyharbour Resources Ltd. (TSX-V: SYH).
Areas of Expertise
: Finance, Management,
International Business, Mergers & Acquisitions, the Mining and
Exploration Industry, the Nuclear Energy Industry, Compensation,
Taxation
Denison
Board Details:
●
Director since August
9, 2018
●
Non-Independent
●
Share
ownership requirement does not apply
|
|
W. Robert
Dengler, 78
Aurora, ON
Canada
Shares:
368,040
Options:
150,000
Share Units:
65,000
|
Robert Dengler is
a corporate director. In 2006, Mr. Dengler retired from his
position as Non-Executive Vice-Chairman of Dynatec Corporation.
Until January 2005, Mr. Dengler served as President and Chief
Executive Officer of Dynatec Corporation, a position which he held
for 25 years. Before founding Dynatec, Mr. Dengler was a partner
and Vice-President & General Manager of J.S. Redpath Limited.
Mr. Dengler has more than 40 years of management experience. Mr.
Dengler obtained his B.Sc. from Queen’s University in
1964.
Areas of Expertise
: Finance,
International Business, the Mining and Exploration Industry,
Compensation, Operations
Denison
Board Details:
●
Director since December 1,
2006; served as a director of a predecessor of Denison since
2004
●
Independent
●
Chair
of the Compensation Committee
●
Chair
of the Environment, Health and Safety Committee
●
Complies
with Share ownership requirement
|
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Brian D.
Edgar, 69
Vancouver, BC
Canada
Shares:
70,000
Options:
150,000
Share Units:
65,000
|
Brian Edgar is
the Chairman of Silver Bull Resources Inc., a mineral exploration
company listed on the TSX and the OTCMKTS. He has been a board
member of Silver Bull since April, 2010. Mr. Edgar holds a Bachelor
of Arts degree and a Law degree, both from the University of
British Columbia. Mr. Edgar practiced Corporate and Securities law
in Vancouver, BC Canada for 16 years before retiring from the law
in October 1992. Since that date, Mr. Edgar has served on the board
of numerous private and public mining and oil & gas
companies.
Mr. Edgar also
sits on the board of directors of ShaMaran Petroleum Corp. (TSX-V,
Nasdaq Stockholm), Silver Bull (TSX and OTCMKTS) and Lucara Diamond
Corp. (TSX, Nasdaq Stockholm).
Areas of Expertise
: Finance,
International Business, the Mining and Exploration Industry,
Corporate Governance, Compensation
Denison
Board Details:
●
Director
since March 22, 2005
●
Independent
●
Chair
of the Corporate Governance and Nominating Committee
●
Member
of the Audit Committee
●
Complies
with Share ownership requirement
|
|
Ron F.
Hochstein, 57
Coquitlam, BC
Canada
Shares:
979,000
Options:
350,000
Share Units:
65,000
|
Ron Hochstein is
currently the President and Chief Executive Officer of Lundin Gold
Inc. Mr. Hochstein served as Executive Chairman of the Company in
2015 and as President and Chief Executive Officer from 2009 to
2015. Prior to that, Mr. Hochstein served as President and Chief
Operating Officer starting in 2006 when International Uranium
Corporation (“IUC”) and Denison Mines Inc.
(“DMI”) combined to form the Company. Before then, Mr.
Hochstein served as President and Chief Executive Officer of IUC.
Mr. Hochstein joined the Company in October 1999 as Vice-President,
Corporate Development and later served as Vice-President and Chief
Operating Officer, prior to his appointment as President and Chief
Executive Officer in April 2000. Prior to joining the Company, Mr.
Hochstein was a Project Manager with Simons Mining Group and was
with Noranda Minerals as a metallurgical engineer. Mr. Hochstein is
a Professional Engineer and holds an M.B.A. from the University of
British Columbia and a B.Sc. from the University of
Alberta.
Mr.
Hochstein
1
is also a director
of Lundin Gold Inc. (TSX, Nasdaq Stockholm).
Areas of Expertise
: Finance, Management,
International Business, Mining and
Exploration,
Operations, Compensation
Denison
Board Details:
●
Director
since April 6, 2000
●
Independent
●
Member
of the Environment, Health and Safety Committee
●
Complies
with Share ownership requirement
|
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Jack O.A.
Lundin, 29
Vancouver, BC
Canada
Shares:
250,000
Options:
Nil
Share Units:
32,000
|
Jack Lundin has
been involved in the natural resource industry his entire life
through exposure to several Group companies and mentorship under
Messrs. Lukas, Ian and the late Adolf Lundin. He began his career
in the sector working prospecting jobs on various early stage
projects in Canada, Russia, Ireland and Portugal. After graduating,
he worked as a commercial analyst for Lundin Norway AS., a
subsidiary of Lundin Petroleum AB. Since 2016, Mr. Lundin has been
employed with Lundin Gold Inc. (TSX: LUG), currently holding the
position of Project Superintendent, on the construction of the
world class Fruta del Norte gold project in Ecuador. Mr. Lundin
received a Bachelor of Science degree in Business Administration
from Chapman University and a Master of Engineering degree in
Mineral Resource Engineering from the University of
Arizona.
Mr. Lundin also
sits on the board of directors of NGEx Resources Inc. (TSX:
NGQ).
Areas of Expertise:
Mining and Energy
Project Economics, Mine Development and Operations, International
Business
Denison
Board Details:
●
Director
since August 9, 2018
●
Not
independent
●
Member
of the Environment, Health and Safety Committee
● Complies
with Share ownership requirement
|
|
Geun Park,
47
Yongin City,
Gyeonggi-do, Republic of Korea
Shares:
Nil
Options:
Nil
Share Units:
32,000
|
Based in Korea,
Mr. Park is currently General Manager of the Overseas Project Team
in the Global Nuclear Business Department at Korea Hydro Nuclear
Power (“KHNP”), a subsidiary of the Korea Electric
Power Corporation (“KEPCO”), with responsibility for
coordinating KHNP’s overseas nuclear power plant business.
Mr. Park has professional expertise developed through working in
the nuclear industry since 1997, and has held various positions at
KHNP, including most recently the General Manager of the Nuclear
Commissioning Team at the Barakah Nuclear Power Plant in the UAE
(“Barakah NPP”). Prior to that, Mr. Park held the
positions of Senior Manager of the Safety Team at the Barakah NPP,
Senior Manager of the EU-APR Team of KHNP’s Central Research
Institute, and Senior Manager of the Finland Project Team. Mr. Park
has a Bachelor’s degree in Mechanical Design from Choongnam
University.
Areas of Expertise
: Management,
Operations, Safety, Energy, International Business
Denison
Board Details:
●
Director
since March 7, 2019
●
Not
independent
●
Share
ownership requirement does not apply.
|
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William A.
Rand, 76
Vancouver, BC
Canada
Shares:
165,000
Options:
150,000
Share Units:
65,000
|
William Rand is
the President and a director of Rand Investments Ltd., a private
investment company. Previously, Mr. Rand practiced
corporate/securities law for nearly 25 years before retiring from
the practice of law in 1992 to establish his investment company.
Mr. Rand received a Bachelor of Commerce degree (Honours Economics)
from McGill University, a law degree from Dalhousie University, a
Master of Laws degree in international law from the London School
of Economics and a Doctor of Laws
honoris causa
from Dalhousie
University.
Mr.
Rand
is also a director
of Lundin Mining Corporation (TSX, Nasdaq Stockholm), New West
Energy Services Inc. (TSX-V) and NGEx Resources Inc. (TSX, Nasdaq
Stockholm).
Areas of Expertise
: Finance, Management,
International Business, Compensation, Law
Denison
Board Details:
●
Director
since May 9, 1997
● Independent
●
Member
of the Compensation Committee
● Complies
with Share ownership requirement
|
|
Catherine
Stefan, 66
Toronto, ON
Canada
Shares:
125,000
Options:
150,000
Share Units:
65,000
|
Catherine Stefan,
Chair of the Denison Board, is a corporate director. Until 2016,
she was President of Stefan & Associates, a consulting firm.
Ms. Stefan served as Chief Operating Officer of O&Y Properties
Inc. from 1996 to 1998. From 1999 until 2008, Ms. Stefan was
Managing Partner of Tivona Capital Corporation, a private
investment firm. Ms. Stefan obtained her Bachelor of Commerce
degree from the University of Toronto in 1973. Ms. Stefan is a
Chartered Professional Accountant (CPA, CA) and a member of the
Institute of Corporate Directors and Women in Mining, with over 30
years of business experience, primarily in senior management of
public companies in the real estate sector. Ms. Stefan’s
mining experience includes her involvement with Denison and as a
Director of Lundin Mining Corporation since 2015.
Ms. Stefan is
also a director of Lundin Mining Corporation (TSX, Nasdaq
Stockholm).
Areas of Expertise
: Management, Finance,
International Business, Compensation, Law
Denison
Board Details:
●
Director since December 1, 2006; served as a director of a
predecessor of Denison since 2004
● Independent
●
Chair of the Board since August 9, 2018; previously Lead Director
since 2015
● Chair
of the Audit Committee
● Member
of the Corporate Governance and Nominating Committee
● Sole
director on the Company’s SOX Steering Committee
● Complies
with Share ownership requirement
|
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Patricia
M. Volker, 61
Burlington, ON
Canada
Shares:
60,000
Options:
Nil
Share Units:
32,000
|
Patricia Volker
is a corporate director, whose experience is highlighted by over 17
years of service at the Chartered Professional Accountants of
Ontario, the self-regulating body for Ontario’s Chartered
Professional Accountants, including the roles of Director of
Standards Enforcement and then Director, Public Accounting, which
she held until her retirement on December 31, 2015. Ms. Volker
served in various capacities in the accounting profession during
her 30+ year career and brings a wealth of advisory, public
accounting, banking and regulatory expertise to the Denison Board.
Ms. Volker is a CPA, CA and CMA and holds a B.Sc. from the
University of Toronto.
Ms. Volker is
also a director of Labrador Iron Ore Royalty Corporation (TSX:
LIF).
Areas of Expertise
: Management,
Finance
Denison
Board Details:
●
Director since August 9,
2018
● Independent
● Member
of the Audit Committee
● Member
of the Corporate Governance and Nominating Committee
● Complies
with Share ownership requirement
|
Notes to
Profiles of the Nominated Directors:
1.
Ron Hochstein was a director
of Sirocco Mining Inc. (“Sirocco”). Pursuant to a plan
of arrangement completed on January 31, 2014, Canadian Lithium
Corp. amalgamated with Sirocco to form RB Energy Inc.
(“RBI”). In October 2014, RBI commenced proceedings
under the Companies' Creditors Arrangement Act (the
“CCAA”). CCAA proceedings continued in 2015 and a
receiver was appointed in May 2015. The TSX de-listed RBI’s
common shares in November 24, 2014 for failure to meet the
continued listing requirements of the TSX. Ron Hochstein was a
director of RBI from the time of the plan of arrangement with
Canadian Lithium Corp. to October 3, 2014.
Majority Voting Policy
The Board has
adopted a Majority Voting Policy which provides that shareholders
are entitled to vote
for
,
or
withhold from
voting
for, each individual director nominee at a Shareholders’
meeting. If the number of Shares
withheld from
any nominee exceeds the
number of Shares voted
for
the nominee, then he or she must immediately tender his or her
resignation to the Board. Denison’s Corporate Governance and
Nominating Committee will review the matter and recommend to the
Board whether to accept the resignation or not. The Board shall
accept the resignation absent exceptional circumstances, and such
resignation will be effective when accepted by the Board. The
director involved does not participate in any Board or committee
deliberations on the matter. The Board must announce its decision
within 90 days of the applicable Shareholder Meeting.
The Majority
Voting Policy applies only in circumstances involving an
uncontested election of directors, meaning an election in which the
number of nominees is equal to the number of directors to be
elected.
2018 Attendance Record
At Denison, we
believe that attendance at meetings is a critical ingredient to an
engaged and effective Board. Personal attendance at Board and
committee meetings is expected of all directors. Directors can
participate by teleconference if they cannot attend in person. The
table below shows the number of Board and committee meetings each
nominated director attended in 2018.
At every Board
and committee meeting, including those held by teleconference,
directors have an opportunity to meet in camera without management
present and the independent directors also have an opportunity to
meet without the non-independent directors. The independent
directors also have an in-person session annually, at which all
independent directors were in attendance in 2018.
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Name
|
Board
|
Audit
Committee
|
Compensation
Committee
|
Environment, Health & Safety Committee
|
Corporate Governance & Nominating Committee
|
|
David
Cates
1
|
4 of
4
|
100%
|
|
|
|
|
|
|
|
|
|
Robert
Dengler
|
7 of
7
|
100%
|
|
|
3 of 3
|
100%
|
4 of
4
|
100%
|
|
|
|
Brian
Edgar
|
6 of
7
|
86%
|
4
of 4
|
100%
|
|
|
|
|
4 of 4
|
100%
|
|
Ron
Hochstein
|
6 of
7
|
86%
|
|
|
|
|
4 of
4
|
100%
|
|
|
|
Jack
Lundin
1
|
4 of
4
|
100%
|
|
|
|
|
1 of
1
|
100%
|
|
|
|
William
Rand
|
7 of
7
|
100%
|
3
of 3
2
|
100%
|
3 of 3
|
100%
|
|
|
|
|
|
Geun
Park
3
|
0 of
0
|
n/a
|
|
|
|
|
|
|
|
|
|
Catherine
Stefan
|
7 of
7
|
100%
|
4
of 4
|
100%
|
|
|
|
|
4 of 4
|
100%
|
|
Patricia
Volker
1
|
3 of
3
4
|
100%
|
1
of 1
2
|
100%
|
|
|
|
|
1 of 1
|
100%
|
Notes:
1.
Messrs. Cates and Lundin and
Ms. Volker were appointed to the Board (and various Committees of
the Board) on August 9, 2018. There were 3 meetings of the Board in
2018 prior to their appointment.
2.
Mr. Rand resigned from, and
Ms. Volker was appointed to, the Audit Committee effective August
9, 2018.
3.
Mr. Park joined the Board on
March 7, 2019, upon the resignation of Mr. Moo Hwan
Seo.
4.
A meeting of the Board of
Directors was called on short notice, and as a result Ms. Volker
did not receive the notice of, and was unable to attend, that
meeting.
Information about Denison’s Relationship with KEPCO &
KHNP
One of the
nominees for election, Mr. Geun Park, is employed by KHNP, a
wholly-owned subsidiary of KEPCO and the parent company of KHNP
Canada. KEPCO is the primary electric utility in South Korea. KHNP
operates large nuclear and hydroelectric plants in South Korea,
which are responsible for over 30% of the country's electric power
supply. Through its indirect corporate holdings, KEPCO is a
significant Shareholder of the Company (holding approximately 9.89%
of the Shares of Denison as at March 13, 2019, according to
publicly available information).
As part of a
general restructuring at KEPCO completed in December 2016, the
Shares of Denison held by a KEPCO affiliate were transferred to
KHNP Canada. Denison and KHNP Canada entered into an amended and
restated strategic relationship agreement in 2017 (replacing the
2009 strategic relationship agreement with KEPCO), which continues
to provide for a long-term collaborative business relationship.
Under the KHNP SRA, so long as KHNP Canada or an affiliate holds
more than 5% of the outstanding Shares, the Board must nominate one
person designated by KHNP Canada or its affiliate for election as a
director at any Shareholder meeting where directors are to be
elected.
The KHNP SRA also
provides KHNP Canada (a) a right of first offer if Denison intends
to sell any of its substantial assets and a right to participate in
certain purchases of substantial assets which Denison proposes to
acquire; and (b) the right to participate in future offerings of
Shares of a certain size in order to preserve its interest in the
Company. To date, neither KEPCO nor KHNP have exercised such rights
under the prior strategic relationship agreement or the KHNP SRA,
respectively.
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Advisory Vote on the Company’s Approach to Executive
Compensation
The Board has
adopted a non-binding shareholder advisory vote on the
Company’s approach to executive compensation. As a formal
opportunity to provide their views on the disclosed objectives of
the Company’s pay for performance compensation model,
shareholders are asked to review and vote, in a non-binding,
advisory manner, on the following resolution:
BE IT RESOLVED
THAT, on an advisory basis and not to diminish the role and
responsibilities of the Board of Directors, the shareholders accept
the approach to executive compensation as disclosed in the
management information circular of the Company dated March 20,
2019.
The Compensation
Committee, and the Board, will take the results of the vote into
account, as appropriate, when considering future compensation
policies, procedures and decisions (see Executive Compensation for
details regarding the compensation philosophy and guidelines of the
Board and the performance metrics and process used to assess
performance).
Shareholders who
have questions or concerns, or who may vote against the resolution,
are encouraged to contact the Board, to enable the Board to better
understand their concerns.
Shareholders may
either vote
for
the
non-binding advisory resolution on the Company’s approach to
executive compensation, or vote
against
. The Board recommends that
Shareholders vote FOR the resolution to accept the Company’s
approach to executive compensation.
Unless otherwise instructed, proxies and voting
instructions given pursuant to this solicitation by Denison’s
management will be voted FOR the approval of the
resolution
.
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DENISON’S CORPORATE GOVERNANCE PRACTICES
This section of
the Circular describes Denison’s corporate governance
practices with reference to the framework provided in National
Policy 58-201 -
Corporate
Governance Guidelines
and National Instrument 58-101 -
Disclosure of Corporate Governance
Practices
(collectively, the “
Governance Guidelines
”) of the
Canadian Securities Administrators.
Denison is a
reporting issuer in all of the provinces of Canada and is
classified as a foreign private issuer by the SEC. The Shares trade
on the Toronto Stock Exchange (DML: TSX) and on NYSE American LLC
(DNN: NYSE American). As such, Denison adheres to Canadian
corporate governance requirements and also complies with the
requirements of NYSE American. The Corporate Governance and
Nominating Committee closely monitors this regulatory environment
and, where applicable, makes recommendations to the Board to modify
the Company’s governance practices as needed.
Denison’s Code of Ethics
The Company is
committed to conducting its business in compliance with the law and
the highest ethical standards. The Company has adopted a written
Code of Ethics which applies to directors, officers and all
employees of the Company. The Code of Ethics sets out principles
and standards for honest and ethical behavior at Denison and covers
the following key areas:
●
compliance with applicable
laws
●
quality of disclosure and
accountability
●
compliance with anti-bribery
and corruption laws in Canada and other jurisdictions
●
confidentiality and corporate
opportunity
●
reporting illegal or
unethical behavior
Directors,
officers or employees who have concerns about violations of laws,
rules or regulations, or the Code of Ethics are to report them to
the Corporate Secretary or to the Chair of the Audit Committee.
Following receipt of any complaints, the Corporate Secretary of the
Company or Chair of the Audit Committee, as the case may be, will
investigate each matter so reported and report to the Audit
Committee. The Audit Committee has primary authority and
responsibility for monitoring compliance with and enforcing the
Code of Ethics, subject to the supervision of the
Board.
The Code of
Ethics is available on the Company’s website at
www.denisonmines.com
and has
been filed on and is accessible through SEDAR under the
Company’s profile at
www.sedar.com
.
Whistleblower
Policy
|
In support
of the Whistleblower Policy, Denison has established a third party
web-based reporting service so that any employee can report any
issue or instance of misconduct easily and
confidentially
.
The Audit
Committee has established a policy and procedures for the receipt,
retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters (the
“
Whistleblower Policy
”
) to encourage employees,
officers and directors to raise concerns regarding accounting,
internal controls or auditing matters on a confidential basis, free
from discrimination, retaliation or harassment. The Whistleblower
Policy is available on the Company’s website at
www.denisonmines.com
.
|
|
In
support of the Whistleblower Policy, Denison has established a
third party web-based reporting service so that any employee can
report any issue or instance of misconduct easily and
confidentially.
|
Anti-bribery
Policy
Denison has
adopted an Anti-bribery Policy, effective August 2015 as amended in
October 2017, the purpose of which is to reiterate Denison’s
commitment to compliance with Canada’s Corruption of Foreign
Public Officials Act (“CFPOA”), the U.S. Foreign
Corrupt Practices Act (“FCPA”) and any local
anti-bribery or anti-corruption laws that may be applicable. This
policy applies to all officers, directors, employees and agents of
the Company, and supplements the Code of Ethics and all applicable
laws.
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The policy
provides guidelines for compliance with the CFPOA, the FCPA and
Company policies applicable to Denison’s operations
world-wide. Denison’s CEO is responsible for administering
and interpreting the policy under the oversight of the Audit
Committee. Denison’s Anti-bribery Policy is available on the
Company’s website at
www.denisonmines.com
.
The
Disclosure Policy
Denison has
developed a Disclosure Policy as part of its ongoing commitment to
full and fair financial disclosure and best practices in corporate
reporting and governance. This policy outlines the internal control
structures that Denison has established to effectively manage the
dissemination of material information to the public and remain
compliant with all applicable legal and business requirements. The
Disclosure Policy is available on the Company’s website at
www.denisonmines.com
or on
SEDAR under the Company’s profile at
www.sedar.com
.
Shareholder Communications
The Board has put
structures in place to ensure effective communication between the
Company, its Shareholders and the public. The Company has
established an investor relations procedure whereby most
Shareholder concerns are dealt with on an individual basis, usually
by providing requested information. Significant Shareholder
concerns are brought to the attention of management or the Board.
Shareholders are informed of developments in the Company by the
issuance of timely press releases which are concurrently posted to
the Company’s website and filed on SEDAR and
EDGAR.
The Board
monitors the policies and procedures that are in place to provide
for effective communication by the Company with its Shareholders
and with the public generally, including effective means to enable
Shareholders to communicate with senior management and the Board.
The Board also monitors the policies and procedures that are in
place to ensure a strong, cohesive, sustained and positive image of
the Company with Shareholders, governments and the public
generally.
Shareholders,
employees or other interested parties may communicate directly with
the Chair of the Board and other independent directors by writing
to them at Denison’s Toronto office, at the following
address: Denison Mines Corp., 1100 – 40 University Avenue,
Toronto, Ontario, M5J 1T1. Envelopes should be marked
“Confidential” and to the attention of the appropriate
party.
Executive Officer Succession Policy
The Board
acknowledges that a change in executive leadership can be a
critical time in a company’s history and that a smooth
transition is essential to maintain the confidence of investors,
business partners, customers and employees and to provide the
incoming officer with a solid platform from which to move the
company forward. In connection therewith, the Board has adopted an
Executive Officer Succession Policy to help Denison plan for and
address a change in leadership, planned or unplanned, to ensure
stability. The policy is periodically reviewed by the Board and
certain matters regarding its administration are delegated to the
Corporate Governance & Nominating Committee.
Board Composition
Denison’s
Board is currently comprised of nine directors. The size and
composition of the Board reflects diversity and breadth of
backgrounds and experience that the Board believes is important for
effective governance and oversight of a diversified and active
company.
The Board has
determined that it is highly effective and well composed. Corporate
governance best practices focus on developing high performing
boards that have integrity and are accountable, independent and
experienced. Under the stewardship of the Corporate Governance
& Nominating Committee, the Denison Board has focused on
meeting or exceeding the governance guidelines.
Denison has not
adopted a term limit or retirement policy; the Board is of the
position that no appreciable benefit would be achieved through the
adoption of such policies. Organically, the Board has seen
significant renewal in recent years, including the appointments of
David Cates, Jack Lundin, Moo Hwan Seo and Patricia Volker in 2018
and Mr. Park in 2019.
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Diversity within Denison
Denison’s
Board recognizes that diversity enriches the decision making
process and is important to the Company’s good governance.
The Board formally adopted a Diversity Policy in November 2014,
which clarifies the Company’s commitment to identifying and
considering women for its Board and in senior officer positions.
Along with the adoption of the Diversity Policy and to further the
Board’s goals of achieving greater gender diversity, the
Board also amended the guidelines by which the Corporate Governance
and Nominating Committee considers the composition of the Board and
evaluates candidates to include a commitment for the committee to
consider qualified female candidates for nomination to the Board.
Similarly, as part of the hiring process of executive officers,
management of the Company seeks inclusion for evaluation as
potential candidates women having the necessary skills, knowledge
and experience.
When changes to
the Board were being considered in 2018, the Board made a concerted
effort to ensure qualified female candidates were sought, and the
Board was very pleased to have Patricia Volker, with her rich
accounting and finance background, agree to join the
team.
Upon adoption of
the Diversity Policy, Denison set targets of at least maintaining
its current level of female representation among directors and
senior officers. Each year, the Corporate Governance and Nominating
Committee reviews and recommends the targets set under the
Diversity Policy, and measures and reports to the Board as to the
Company’s annual and cumulative progress in achieving targets
for representation of women within Denison. The Committee reported
Denison’s female representation as at the end of 2018 as
follows:
●
Two female directors on the
Board (one of whom is the Chair of the Board and both of whom are
members of the Audit Committee and the Corporate Governance and
Nominating Committee) out of nine directors, representing 22.2% of
the Board;
●
One female senior officer out
of seven senior officers (with creation of a new Vice President,
Commercial position in 2018), representing 14.3% of the senior
officers.
●
One female out of three
senior officers at the Company’s major subsidiary, DMI,
representing 33.3% of the senior officers of DMI.
Denison believes
that the current composition of the Board is highly effective and
that the Board is well-composed. As future turnover occurs, the
Corporate Governance and Nominating Committee will continue to
consider gender diversity as a key factor in its nomination
process. Similarly, the Company will strive to maintain its current
level of gender diversity among its senior officers and among the
senior officers of DMI, and will consider gender diversity as a
part of the hiring decision as turnover occurs.
Independence
The Board is
responsible for determining whether or not each director is
independent. This assessment is made in accordance with standards
of the Canadian Securities Administrators in National Instrument
52-110 –
Audit
Committees
(“
NI
52-110
”) and the Governance Guidelines. With the
assistance of the Corporate Governance and Nominating Committee,
the Board reviews each director’s independence annually and
upon the appointment or election of a new director. The Board last
considered this matter at its meeting on March 7, 2019. The
following table sets out the Board’s determination and
reasoning with respect to each nominee for election at the
Meeting:
|
Name
|
Independent
|
Not
Independent
|
Commentary on
Independence
|
|
David
Cates
|
|
X
|
As President and
Chief Executive Officer of the Company, Mr. Cates is not
independent.
|
|
Robert
Dengler
|
X
|
|
|
|
Brian
Edgar
|
X
|
|
|
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Name
|
Independent
|
Not
Independent
|
Commentary on
Independence
|
|
Ron
Hochstein
|
X
|
|
Mr. Hochstein had
been Executive Chair and President and Chief Executive Officer of
the Company, but resigned from his last position on February 11,
2016, more than three years from the date hereof. Therefore, Mr.
Hochstein is independent.
|
|
Jack
Lundin
|
|
X
|
Mr. Jack Lundin
cannot be regarded as independent, as he is an immediate family
member of Mr. Lukas Lundin who, within the last three years, served
as Executive Chair of the Company until his resignation on August
9, 2018.
|
|
William
Rand
|
X
|
|
|
|
Geun
Park
|
|
X
|
Mr. Park is
regarded as having an indirect material relationship which could
reasonably be expected to interfere with his exercise of
independent judgment, considering the Company’s strategic
relationship with KHNP Canada, KHNP Canada’s significant
shareholding in Denison and Mr. Park’s position with
KHNP.
|
|
Catherine
Stefan
|
X
|
|
|
|
Patricia
Volker
|
X
|
|
|
In addition, the
Board believes that adequate structures and processes are in place
to facilitate the functioning of the Board independently of
management, including:
|
● The Board has an
independent Chair
|
Ms. Stefan has
been appointed Chair of the Board, and previously served as the
independent Lead Director. The Chair facilitates the functioning of
the Board independently of management, serves as an independent
leadership contact for directors and assists in maintaining and
enhancing the quality of the Company’s corporate governance.
With her extensive experience in corporate governance matters, Ms.
Stefan is leading and managing the Board in a manner that ensures
it functions independently of management, in an effective and
efficient manner.
|
|
● The Audit, Compensation and
Corporate Governance and Nominating Committees are entirely
independent.
|
Aside from the
Environment, Health and Safety Committee, all of the Board’s
standing committees are composed entirely of independent directors.
The Board has considered the membership of Mr. Lundin on the
Environment, Health and Safety Committee and determined that his
operational experience is a benefit to the committee and that his
lack of independence does not interfere with that committee’s
responsibilities or interfere with his judgment.
|
|
● The Board regularly meets without
management.
|
The Board has an
opportunity to meet in camera without management at every Board and
committee meeting. In 2018, the independent directors met formally
each quarter and met in person once in November. Only independent
directors attend the in camera sessions of the Audit Committee,
Compensation Committee and Corporate Governance and Nominating
Committee, as all of the members of these committees are
independent.
|
|
● The Board, a committee or an
individual director may engage an independent advisor.
|
Individual
directors may, in appropriate circumstances and with the
authorization of the applicable committee or the Chair, engage
independent advisors at the expense of the Company.
|
The Board takes
steps to ensure directors exercise independent judgment in
considering transactions and agreements in respect of which a
director or executive officer has a material interest. Such steps
have included the adoption of the Code of Ethics, which provides
examples of conflicts of interests and outlines the procedure to be
followed in situations that present an actual or potential conflict
of interest (including reporting such conflict or potential
conflict to the Chair of Denison’s Audit
Committee).
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The Role of the Board
The Board is responsible for overseeing the
management of the business and affairs of Denison, with a view to
the long-term best interests of the Company.
The Board has adopted a formal mandate setting out
the role and responsibilities of the Board (see Appendix A). In
order to delineate the roles and responsibilities of the Chair of
the Board and the President and Chief Executive Officer, the Board
has also adopted written position descriptions for these
positions.
In discharging
its stewardship over the Company, the Board has undertaken the
following specific duties and responsibilities:
●
satisfying itself as to the
integrity of the Chief Executive Officer and other executive
officers and as to a culture of integrity throughout the
Company;
●
approving, supervising and
providing guidance to management on the Company’s strategic
planning process;
●
identifying the principal
risks of the Company’s business and ensuring
management’s implementation and assessment of appropriate
risk management systems;
●
ensuring that the Company has
highly qualified management and adequate and effective succession
plans for senior management;
●
overseeing the
Company’s communications policy with its Shareholders and
with the public generally; and
●
assessing directly and
through its Audit Committee, the integrity of the Company’s
internal control and management information systems.
Generally,
operations in the ordinary course or that are not in the ordinary
course and do not exceed material levels of expenditures or
commitment on the part of the Company have been delegated to
management. Decisions relating to matters that are not in the
ordinary course and that involve material expenditures or
commitments on the part of the Company generally require prior
approval of the Board. As the Board has plenary power, any
responsibility which is not delegated to management or a Board
committee remains with the Board.
The
responsibilities of the Chair of the Board include presiding over
Board meetings, assuming principal responsibility for the
Board’s operation and functioning independent of management
and ensuring that Board functions are effectively carried out. The
responsibilities and authorities of the Chair of each committee of
the Board are set out in the mandate for each committee and in the
Board’s mandate. Generally, the Chair of a committee leads
and oversees the activities of the committee to ensure that it
fulfills its mandate and operates independently of
management.
The Role of the CEO
Denison’s
Chief Executive Officer ("CEO") is appointed by the Board and the
Board has adopted a position description for the CEO. Subject to
the oversight of the Board, the CEO is responsible for the
management of the Company’s business, providing leadership
and vision, developing and recommending significant corporate
strategies and objectives for approval by the Board, and developing
and recommending to the Board annual operating budgets. Each year,
the CEO develops annual objectives which are reviewed and approved
by the Compensation Committee and then reported to the Board. The
CEO is accountable to the Board and its committees, and the
Compensation Committee conducts a formal review of his performance
each year. The Board has also established limits of authority for
the CEO. These are described in the Company’s delegation of
authority policy, which was originally approved by the Board in
2008 and last updated effective January 1, 2018.
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Board
Committees
|
To assist
the Board with its responsibilities, in 2018 the Board had four
standing committees: the Audit Committee, the Compensation
Committee, the Corporate Governance and Nominating Committee and
the Environment, Health and Safety
Committee (the
“
EHS Committee
”
). Each committee has a written
mandate and reviews its mandate annually. Copies of the committee
mandates are available on the Company’s website.
|
|
Each
of the standing committees has responsibility in its area of
expertise for identifying the principal risks in Denison’s
business and monitoring management’s implementation and
assessment of appropriate risk management
systems.
|
The Audit Committee
The Audit
Committee has three members:
●
Catherine Stefan
(Chair)
The Board has
satisfied itself that all members of the Audit Committee are
independent and financially literate for the purposes of NI 52-110
and the requirements of NYSE American. All three members are also
considered by the Company to have financial expertise within the
meaning of the
Sarbanes Oxley Act
of 2002
. Mr. Edgar has a law degree and practiced for 16
years in corporate finance law. In addition, he has served as
President and Chief Executive Officer of a public company and
served on public company boards and audit committees for over 30
years. Ms. Stefan is a Chartered Accountant and a Chartered
Professional Accountant with a Bachelor of Commerce degree. In
addition, she has held the position of Senior Vice President of a
public company. Ms. Volker is a Chartered Professional Accountant,
Chartered Accountant and a Certified Management Accountant and has
served in various capacities in the accounting profession during
her 30+ year career and brings a wealth of advisory, public
accounting, banking and regulatory expertise to the Denison Board.
Ms. Volker also chairs the audit committee of another public
company, as well as chairs the finance and audit committee of a
private organization board.
The Audit
Committee oversees the accounting and financial reporting processes
of the Company and its subsidiaries and all audits and external
reviews of the financial statements of the Company, on behalf of
the Board. The Audit Committee is also responsible for examining
all financial information, including annual and quarterly financial
statements, prepared for securities commissions and similar
regulatory bodies prior to filing or delivery of the
same.
The Audit
Committee recommends to the Board the firm of independent auditors
to be nominated for appointment by the Shareholders. All auditing
services and non-audit services to be provided to the Company are
pre-approved by the Audit Committee, in part to ensure
that the independence of the Company’s
auditor is not compromised through engaging it for other
services.
The Audit Committee reviews, on a continuous
basis, any reports prepared by the Company’s auditor relating
to the Company’s accounting policies and procedures, as well
as internal control procedures and systems.
The following
table discloses the fees billed to the Company by PwC during the
last two fiscal years.
|
Financial
Year
|
|
Audit-Related
|
|
|
Ending
|
Audit Fees
(1)
|
Fees
(2)
|
Tax Fees
(3)
|
All Other Fees
(4)
|
|
December 31,
2018
|
$171,434
|
$123,994
|
Nil
|
Nil
|
|
December 31,
2017
|
$173,526
|
$115,212
|
Nil
|
Nil
|
Notes:
1.
The aggregate fees billed for
audit services of the Company’s consolidated financial
statements.
2.
The aggregate fees billed for
assurance and related services that are reasonably related to the
performance of the audit or review of the Company’s financial
statements and are not disclosed in the Audit Fees column. Fees
relate to reviews of interim consolidated financial statements and
specified audit procedures not included as part of the audit of the
consolidated financial statements.
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3.
The aggregate fees billed for
tax compliance, tax advice, and tax planning services, such as
transfer pricing and tax return preparation.
4.
The aggregate fees billed for
professional services other than those listed in the other three
columns.
The Audit
Committee also oversees the Company’s internal audit function
and oversees the Code of Ethics, the Whistleblower Policy and the
Anti-bribery Policy and reviews each such policy annually. The
Audit Committee has the responsibility for oversight of internal
controls, including the Company’s Internal Audit Charter, and
the Company’s senior internal auditor reports directly to the
Chair of the Audit Committee on matters related to internal
accounting controls. For additional information regarding the audit
committee required by NI 52-110, please refer to the
Company’s Annual Information Form under the heading
“Standing Committees – Audit
Committee”.
The Audit
Committee is required to meet a minimum of four times each year,
and it met four times in 2018. It met in camera without management
present at every meeting with the external auditor.
The Compensation Committee
The Compensation
Committee has two members, each of whom is independent for the
purposes of section 1.4 of NI 52-110:
In accordance
with its mandate, members of the Compensation Committee must be
independent and have experience and skills relevant to executive
compensation. Mr. Dengler brings over 25 years of first-hand
experience working with executive compensation in the mining
industry, serving as Chief Executive Officer of Dynatec
Corporation. Mr. Dengler has been the Chair of Denison’s
Compensation Committee since 2006 and was a compensation committee
member of the Board of Directors of IAMGOLD Corporation. Mr. Rand
has extensive experience in executive compensation, and is
currently a compensation committee member on the boards of three
public companies. Additionally, Mr. Rand draws on the skills and
knowledge of executive compensation and disclosure issues which he
acquired during his long career as a corporate securities
lawyer.
The Compensation
Committee is responsible for the Company’s executive
compensation policy and determines the general compensation
structure, policies and programs of the Company, including the
extent and level of participation in incentive programs, for
recommendation to the Board. The Compensation Committee also
reviews and approves the executive compensation disclosure included
in the Company’s Circular each year.
The Compensation
Committee evaluates the Chief Executive Officer’s performance
and recommends to the Board the elements and amounts of the Chief
Executive Officer’s compensation. The Compensation Committee
reviews management’s recommendations for, and approves the
compensation of, the other officers of the Company. The
Compensation Committee is also responsible for considering any
risks associated with the Corporation’s compensation policies
and practices and the steps that may be taken to mitigate any
identified risks.
The Compensation
Committee has also been mandated to review the adequacy and form of
the compensation of directors and to ensure that such compensation
realistically reflects the responsibilities and risks involved in
being an effective director.
The Compensation
Committee met three times during 2018 to address matters pertaining
to its mandate.
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The Corporate Governance and Nominating Committee
The Corporate
Governance and Nominating Committee has three members, each of whom
is independent for the purposes of section 1.4 of NI
52-110:
This Committee is
responsible for Denison’s approach to corporate governance,
monitors the regulatory environment and recommends changes to the
Company’s practices when appropriate. The Corporate
Governance and Nominating Committee oversees the effective
functioning of the Board and the relationship between the Board and
management. The Corporate Governance and Nominating Committee
ensures that the Board can function independently of management as
required, makes recommendations with respect to the appointment of
an independent Chair of the Board or Lead Director, identifies
individuals qualified to become new Board members and recommends to
the Board the director nominees at each annual meeting of
Shareholders and, with the assistance of the Board and, when
necessary, develops an orientation and education program for new
recruits to the Board.
In identifying
possible nominees to the Board, the Corporate Governance and
Nominating Committee considers the competencies and skills
necessary for the Board as a whole, the skills of existing
directors and the competencies and skills each new nominee will
bring to the Board, as well as whether or not each nominee will
devote sufficient time and resources to the Board and whether he or
she is independent within the meaning of the Governance
Guidelines.
The Corporate
Governance and Nominating Committee also annually reviews and makes
recommendations to the Board with respect to: (i) the size and
composition of the Board; (ii) the independence of Board members;
(iii) the composition of the committees of the Board; (iv) the
effectiveness and contribution of the Board, its committees and
individual directors, having reference to their respective
mandates, charters and position descriptions; and (v) compliance
with and amendments to the Board mandates, policies and
guidelines.
Early in each
year the Corporate Governance and Nominating Committee distributes,
receives and reviews the results of written board effectiveness
assessments. The assessments question members of the Board as to
their level of satisfaction with the functioning of the Board, its
interaction with management and the performance of the standing
committees of the Board. The Board members also conduct peer
reviews and a self-assessment as to their effectiveness as a Board
member. After the assessments are reviewed, the Corporate
Governance and Nominating Committee reports to the Board as to the
results and makes recommendations to the Board to improve the
Company’s corporate governance practices. This process occurs
prior to the consideration by the Corporate Governance and
Nominating Committee of nominations for Board member elections at
the annual meeting of Shareholders each year. In addition, the
Corporate Governance and Nominating Committee reviews the
Company’s disclosure of its corporate governance practices in
the Company’s Circular each year.
The Corporate
Governance & Nominating Committee is also responsible for
talent and succession risk. In particular, the Corporate Governance
and Nominating Committee has been delegated certain
responsibilities under the Company's Executive Officer Succession
Policy, which include reviewing the current state of succession
planning matters and reporting to the Board on its findings and
recommendations; assuring that Denison has in place appropriate
planning to address emergency CEO succession planning in the event
of extraordinary circumstances; and reviewing the policy and
Denison’s CEO succession plans at least
annually.
The Corporate
Governance and Nominating Committee met four times during
2018.
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The Environment, Health and Safety Committee
The EHS Committee
currently has three members:
The mining
industry, by its very nature, can have an impact on the natural
environment and can involve certain risks to employees. As a
result, environmental planning and compliance and safety programs
must play a very important part in the operations of any company
engaged in these activities. The Company takes these issues very
seriously and has established the EHS Committee to oversee the
Company’s efforts to act in a responsible and concerned
manner with respect to matters affecting the environment, health
and safety and its stakeholders. The EHS Committee met four times
during 2018.
Director Education
The Board
encourages directors and senior management to participate in
appropriate professional and personal development activities,
courses and programs, and supports management’s commitment to
the training and development of all permanent
employees.
Director
education is implemented in the following ways at
Denison:
|
●
An
on-line board portal dedicated exclusively to the
Board
|
In addition to
storing meeting materials, Denison’s board portal houses a
reference manual, which includes corporate information, industry
information, regulatory and governance updates and corporate
policies. As a hosted website dedicated to our Board, the portal is
current and available to directors wherever they are.
|
|
●
Management
Presentations to the Board and to Committees
|
When appropriate,
management prepares and presents relevant information to Board
members. For instance, at each regular Board meeting, the Chief
Executive Officer provides an industry and market update.
Similarly, the Company’s legal counsel also provides
directors and senior officers of the Company with summary updates
of any developments relating to the duties and responsibilities of
directors and officers and to any other corporate governance
matters. Denison’s Chief Financial Officer also ensures that
the Audit Committee is apprised of relevant developments and
issues.
|
|
●
Third-Party
Presentations for the Board
|
From time to
time, a leading Canadian law firm provides topical presentations
via webinar or other presentation to Denison’s Board. In
addition, the Company’s external auditor provides education
when requested and warranted.
|
|
●
Updates
and Subscriptions
|
Management
distributes updates, newsletters and articles on industry and
regulatory information to the Board on a regular basis via email.
Additionally, the Company maintains subscriptions to regular
newsletters on topics of interest for circulation to the
Board.
|
The Corporate
Governance and Nominating Committee also coordinates an orientation
session for new Board members, covering a range of topics from the
role of the Board, its committees and directors to Denison’s
business and the uranium business generally.
Directors’
and Officers’ Liability Insurance
The Company
maintains liability insurance for its directors and officers acting
in their respective capacities in an aggregate amount of
$50,000,000, subject to a deductible of $500,000 per occurrence for
insured claims including claims under securities laws for which the
Company has provided an indemnity. There is no deductible for
non-indemnified claims. The current policy is for the period from
November 1, 2018 to November 1, 2019. The premium paid by the
Company in 2018 for its directors’ and officer’s
liability insurance was $310,628. No amounts were paid by
individual directors and officers for this coverage.
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DIRECTOR COMPENSATION
Denison
recognizes the contribution that its directors make to the Company
and seeks to compensate them accordingly. The Compensation
Committee is responsible for making recommendations as to director
compensation for the Board’s consideration and approval. When
annually reviewing the Board’s compensation arrangements, the
Compensation Committee considers the following
objectives:
|
●
Board
compensation should be competitive to attract talent.
|
Compensation is
set at a level that will attract desirable candidates and retain
current directors. Denison recognizes that there is considerable
competition for qualified directors in the mining
sector.
|
|
●
Board
compensation should reward directors appropriately.
|
Denison
recognizes that directors need to be compensated fairly for their
time and efforts and the risks and responsibilities which they
assume as directors in an increasingly complex regulatory
environment.
|
|
●
Board
compensation should align the interests of directors with those of
the Shareholders.
|
Denison’s
compensation package, including fees, share units and options,
coupled with the Share ownership requirement imposed on directors
aligns directors’ interests with those of its
Shareholders.
|
|
●
Board
compensation should be fair.
|
Denison seeks to
reward its directors reasonably and on par with directors of
comparable companies.
|
In 2010, the
Compensation Committee engaged Towers Watson & Co. to evaluate
the Board's compensation. The Compensation Committee adopted a
number of key principles for Denison’s directors’
compensation from the Towers Watson report which the Committee
still applies when making compensation decisions:
●
Director compensation must
appropriately reward directors for their time commitment and
compensate them for the risks and responsibilities they assume in
their roles for the Company.
●
Competitive director
compensation is critical to the Company’s ability to attract
and retain qualified and desirable directors.
●
A portion of directors’
compensation should be by way of equity, to provide further
incentive to directors beyond ordinary cash
compensation.
To achieve these
objectives, Denison’s directors receive cash and equity
compensation.
In 2015, the
Compensation Committee engaged Global Governance Advisors
("
GGA
") to assist in the
evaluation of the Board's compensation in comparison to the
Company's peer group, with reference to the "2014 Report on
Executive & Board Remuneration" produced by GGA. Having
considered the report by GGA and the Company's current operations,
the Compensation Committee concluded that a revision to the Board
compensation would be appropriate. The compensation was adjusted to
remove compensation for attendance at individual meetings of the
Board and the four standing committees.
In 2018, as part
of the Compensation Committee’s ongoing review of Board
compensation, and its broader commitment to enhance governance
practices and to be cognizant of current market trends in
directors’ compensation, the Board revised its compensation
structure and granted Restricted Share Units under the
Corporation’s Share Unit Plan, and did not grant stock
options to the directors. See “Equity Compensation” for
more details.
Cash
Compensation
In 2018,
Denison’s director cash compensation included an annual
retainer which varied depending on a director’s role on the
Board, an annual chair fee for serving as a committee chair and an
annual committee membership fee for serving on a committee of the
Board. The table below sets out non-employee directors’
retainers and fees as at December 31, 2018.
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|
Annual Retainer
1
|
CAD$
|
|
Non-employee
Directors
|
30,000
|
|
Committee / Chair Fees
|
CAD$
|
|
Board
Chair
|
10,000
|
|
Audit Committee
Chair
|
15,000
|
|
Other Committee
Chairs
|
8,500
|
|
Committee
membership
2
|
3,000
|
Note to Cash
Compensation:
1.
No retainer is payable to any
director who attends less than 50% of Board meetings.
2.
The EHS Committee chair and
members have waived receipt of fees for their services on such
committee.
Denison also
reimburses directors for any reasonable travel and out-of-pocket
expenses relating to their duties as directors. The Company was
party to a services agreement with Lundin S.A., to provide certain
office and boardroom access and administrative support to directors
and officers of Denison using the Lundin S.A. offices in Geneva,
Switzerland, which access and services were most often used by the
Company's former Executive Chairman. Lukas Lundin. Effective
September 30, 2018, that services agreement was terminated in
connection with Mr. Lundin’s resignation in August
2018.
Equity
Compensation
The Board
believes that equity grants help to align directors’
interests with those of Shareholders and also provide additional
incentive to directors for corporate performance.
In 2018, Denison
compensated its directors through the grant of share units under
the Company’s Share Unit Plan (the “Share Unit
Plan”). Effective April 2, 2018, 66,000 Restricted Share
Units (“RSUs”) were granted to the then Executive
Chairman and 33,000 RSUs were granted to each other Denison
director. In prior years, directors had been granted stock options,
pursuant to Denison’s Share Option Plan (the “Option
Plan”). In 2017 and 2016, the Board granted 100,000 options
to the Executive Chairman and 50,000 options to each other
director.
2018
Director Compensation
The table below
sets out what Denison paid to non-employee directors in retainers
and fees in 2018.
|
Name
|
Retainer and Fees Earned
|
Share-based Awards
|
Option-based Awards
|
All Other Compensation
|
Total
|
|
|
(CAD$)
|
(CAD$)
1
|
(CAD$)
|
(CAD$)
|
(CAD$)
|
|
Robert
Dengler
2
|
46,000
|
21,450
|
Nil
|
Nil
|
67,450
|
|
Brian
Edgar
|
41,500
|
21,450
|
Nil
|
Nil
|
62,950
|
|
Ron
Hochstein
2
|
37,500
|
21,450
|
Nil
|
Nil
|
58,950
|
|
Kwang Hee
Jeong
3
|
19,500
|
21,450
|
Nil
|
Nil
|
40,950
|
|
Jack
Lundin
2,4
|
13,000
|
Nil
|
Nil
|
Nil
|
13,000
|
|
Lukas
Lundin
4
|
27,375
|
42,900
|
Nil
|
Nil
|
70,275
|
|
William
Rand
|
34,875
|
21,450
|
Nil
|
Nil
|
56,325
|
|
Moo Hwan
Seo
3
|
10,500
|
Nil
|
Nil
|
Nil
|
10,500
|
|
Catherine
Stefan
5
|
61,600
|
21,450
|
Nil
|
Nil
|
83,050
|
|
Patricia
Volker
4
|
12,600
|
Nil
|
Nil
|
Nil
|
12,600
|
Notes to 2018
Director Compensation:
1.
This amount represents the
fair value of awards made under the Share Unit Plan for the
applicable financial year. The fair value is determined using the
closing price of Denison’s shares on the TSX on the trading
day prior to the grant date.
2.
For participation on the
Company’s ad hoc Technical Committee, Mr. Dengler ($7,500),
Mr. Hochstein ($7,500) and Mr. Lundin ($2,500, pro-rated from when
he joined the Board) each received fees.
3.
Directors fees for Mr. Jeong
(until his resignation on August 9, 2018) and Mr. Seo (from his
appointment on August 9, 2018) were paid to KHNP Canada Energy
Ltd.
4.
Mr. Lukas Lundin resigned,
and Mr. Jack Lundin and Ms. Volker joined, the Board on August 9,
2018.
5.
Ms. Stefan received $3,200
for attendance at SOX meetings in 2017 in addition to her annual
retainer.
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Directors’
Outstanding Option-Based Awards
Each non-employee
director’s option-based awards outstanding at the end of 2018
is as follows:
|
Name
|
Number of
Shares underlying unexercised options (#)
|
Option
exercise price ($)
|
Option
expiration date
|
Value of
unexercised in-the- money options ($)
1
|
|
Robert
Dengler
|
50,000
|
1.82
|
March 5,
2019
|
Nil
|
|
|
50,000
|
1.10
|
March 6,
2020
|
Nil
|
|
|
50,000
|
0.64
|
March 10,
2021
|
Nil
|
|
|
50,000
|
0.85
|
March 8,
2022
|
Nil
|
|
Total
|
200,000
|
|
|
|
|
Brian
Edgar
|
50,000
|
1.82
|
March 5,
2019
|
Nil
|
|
|
50,000
|
1.10
|
March 6,
2020
|
Nil
|
|
|
50,000
|
0.64
|
March 10,
2021
|
Nil
|
|
|
50,000
|
0.85
|
March 10,
2022
|
Nil
|
|
Total
|
200,000
|
|
|
|
|
Ron
Hochstein
|
200,000
|
1.82
|
March 5,
2019
|
Nil
|
|
|
250,000
2
|
1.10
|
March 6,
2020
|
Nil
|
|
|
50,000
|
0.64
|
March 10,
2021
|
Nil
|
|
|
50,000
|
0.85
|
March 10,
2022
|
Nil
|
|
Total
|
550,000
|
|
|
|
|
Jack
Lundin
3
|
Nil
|
Nil
|
N/A
|
Nil
|
|
Total
|
Nil
|
|
|
|
|
William
Rand
|
50,000
|
1.82
|
March 5,
2019
|
Nil
|
|
|
50,000
|
1.10
|
March 6,
2020
|
Nil
|
|
|
50,000
|
0.64
|
March 10,
2021
|
Nil
|
|
|
50,000
|
0.85
|
March 10,
2022
|
Nil
|
|
Total
|
200,000
|
|
|
|
|
Moo Hwan
Seo
3
|
Nil
|
Nil
|
N/A
|
Nil
|
|
Total
|
Nil
|
|
|
|
|
Catherine
Stefan
|
50,000
|
1.82
|
March 5,
2019
|
Nil
|
|
|
50,000
|
1.10
|
March 6,
2020
|
Nil
|
|
|
50,000
|
0.64
|
March 10,
2021
|
Nil
|
|
|
50,000
|
0.85
|
March 10,
2022
|
Nil
|
|
Total
|
200,000
|
|
|
|
|
Patricia
Volker
3
|
Nil
|
Nil
|
N/A
|
Nil
|
|
Total
|
Nil
|
|
|
|
Notes to
Directors’ Outstanding Option-Based Awards:
1.
Option values have been
calculated using the closing price of the Shares on the TSX on
December 31, 2018 (last trading date of 2018) of $0.63 per share,
less the applicable exercise price of the outstanding options. As
at December 31, 2018, some of the above options had not fully
vested. The above value of unexercised in-the-money options has
been computed assuming that all of the options have
vested.
2.
Mr. Hochstein received a
grant of options in recognition of his services as President and
CEO prior to resigning those roles in January 6, 2015 and March 23,
2015, respectively, in addition to the options received for his
role as Executive Chairman of Denison at the time of this
grant.
3.
Ms. Volker and Messrs. Lundin
and Seo joined the Board in August 2018, and no options were
granted to directors in 2018.
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Directors’
Outstanding Share-Based Awards
Each non-employee
director’s share-based awards outstanding at the end of 2018
is as follows:
|
Name
|
UnvestedShare Units
(#)
|
Market or
payout value of Unvested Share Units
($)
|
Vested but
Unpaid Share Units
(#)
|
Market or
payout value of Vested but Unpaid Share Units
($)
|
|
Robert
Dengler
|
33,000
|
20,790
|
N/A
|
Nil
|
|
Total
|
33,000
|
|
|
|
|
Brian
Edgar
|
33,000
|
20,790
|
N/A
|
Nil
|
|
Total
|
33,000
|
|
|
|
|
Ron
Hochstein
|
33,000
|
20,790
|
N/A
|
Nil
|
|
Total
|
33,000
|
|
|
|
|
Jack
Lundin
2
|
Nil
|
Nil
|
N/A
|
Nil
|
|
Total
|
Nil
|
|
|
|
|
William
Rand
|
33,000
|
20,790
|
N/A
|
Nil
|
|
Total
|
33,000
|
|
|
|
|
Moo Hwan
Seo
2
|
Nil
|
Nil
|
N/A
|
Nil
|
|
Total
|
Nil
|
|
|
|
|
Catherine
Stefan
|
33,000
|
20,790
|
N/A
|
Nil
|
|
Total
|
33,000
|
|
|
|
|
Patricia
Volker
2
|
Nil
|
Nil
|
N/A
|
Nil
|
|
Total
|
Nil
|
|
|
|
Notes to
Directors’ Outstanding Share-Based Awards:
1.
In April 2018, each
non-employee director on the Board at that time received a grant of
33,000 restricted share units, vesting equally over three years.
Share unit values have been calculated using the closing price of
the Shares on the TSX on December 31, 2018 (last trading date of
2018) of $0.63 per share.
2.
Ms. Volker and Messrs. Lundin
and Seo joined the Board in August 2018, and no equity compensation
was granted to directors on or after such date in
2018.
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Value Vested or Earned in 2018
The following
table sets out for each non-employee director the value of the
Company’s equity plan compensation vested or earned during
the financial year ended December 31, 2018. The Company had no
non-equity incentive plan compensation for directors at December
31, 2018.
|
Name
|
Option-based awards
Value vested during the year
1
($)
|
Share-based awards
Value vested during the year
2
($)
|
|
Robert
Dengler
|
(7,250)
|
N/A
|
|
Brian
Edgar
|
(7,250)
|
N/A
|
|
Ron
Hochstein
|
(7,250)
|
N/A
|
|
Kwang Hee
Jeong
3
|
(6,250)
|
N/A
|
|
Jack
Lundin
3
|
N/A
|
N/A
|
|
Lukas
Lundin
3
|
(14,500)
|
N/A
|
|
William
Rand
|
(7,250)
|
N/A
|
|
Moo Hwan
Seo
3
|
N/A
|
N/A
|
|
Catherine
Stefan
|
(7,250)
|
N/A
|
|
Patricia
Volker
3
|
N/A
|
N/A
|
Notes to
Value Vested or Earned in 2018:
1.
The value vested during the
year reflects the aggregate dollar value that would have been
realized if the options that vested in 2018 were exercised on their
vesting date. A negative value indicates that the exercise price of
the option exceeds the market value of Denison’s shares on
the vesting date.
2.
No share units vested in
2018.
3.
Mr. Jack Lundin, Mr. Seo and
Ms. Volker joined, and Mr. Lukas Lundin and Mr. Jeong resigned
from, the Board on August 9, 2018. Mr. Lukas Lundin and Mr.
Jeong’s unexercised and/or unvested equity compensation
expired 30 days after their departure.
Share Ownership Requirement
The Board has
adopted a Share ownership requirement for its members. It provides
that all non- employee directors must own a requisite number of
Shares by the later of five years from becoming a non-employee
director or March 7, 2013, being the date on which the Share
ownership requirement was increased. In accordance with the Share
ownership requirement, directors are required to own Shares with a
cost equal to three times the value of their annual director
retainers. Stock options and share units do not count toward
directors’ Share ownership requirements. The Board has
exempted nominees of KHNP, the Company’s largest shareholder,
from this requirement. In 2018, all directors were in compliance
with the Share ownership requirement (either owning sufficient
shares, within the five year period of becoming a non-employee
director or otherwise exempt).
Loans to
Directors
As at the date of
this Circular, Denison and its subsidiaries had no loans
outstanding to any current or former directors, except routine
indebtedness as defined under Canadian securities
laws.
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EXECUTIVE COMPENSATION
This section of
the Circular discusses Denison’s executive compensation
program and the pay decisions affecting its Named Executive
Officers (Denison’s CEO, CFO and the other three most highly
compensated executive officers, collectively, the
“
NEOs
”). The
NEOs for 2018 were:
|
NEO
|
Position(s)
during 2018
|
|
David
Cates
|
President &
Chief Executive Officer
|
|
Mac
McDonald
|
Vice President
Finance & Chief Financial Officer
|
|
Peter
Longo
|
Vice President,
Project Development
|
|
Michael
Schoonderwoerd
|
Vice President,
Controller
|
|
Dale
Verran
|
Vice President,
Exploration
|
The Objectives of the Company’s Compensation
Program
Denison strives
to improve Shareholder value through sustainable corporate
performance. The Company recognizes that its employees and, in
particular, the leaders within the organization have a significant
impact on Denison’s success.
In support of its
goal, Denison’s executive compensation program has three
objectives:
1. Align the
interests of its executive officers with the long-term interests of
the Company and its Shareholders.
2. Link
compensation to the performance of both the Company and the
executive.
3. Compensate
executive officers at a level and in a manner that ensures that
Denison is capable of attracting and retaining talented
executives.
Managing Risk
When determining
an executive’s compensation package, the Compensation
Committee seeks to balance annual performance incentives, which are
awarded based on success against pre-established short-term
corporate and individual goals, with long-term incentive payments
focused on longer term performance of the Company, including stock
option grants under the Option Plan and share units granted under
the Share Unit Plan. The Compensation Committee also considers the
implications of each of the various components of the
Company’s compensation policies and practices to ensure that
executive officers are not inappropriately motivated towards
shorter-term results or excessive risk taking or illegal
behaviour.
The Compensation
Committee uses a number of strategies to reduce the risk associated
with compensation, including:
●
Reviewing and approving
annual individual objectives of executives and then assessing
performance against these objectives when awarding the individual
performance component of the annual bonus;
●
Considering the
Company’s performance relative to its peers when reviewing
the corporate performance component of the NEO’s annual
bonus;
●
Making the annual bonus
payment of the CEO and the CFO conditional upon a claw back
agreement, whereby each of them personally agrees to reimburse any
portion of their bonus payment which is awarded for achievements
that are found to involve their fraud, theft or other illegal
conduct;
●
Considering individual
performance against set objectives when determining the quantum of
any equity grants to executives;
●
Setting equity compensation
granting policies, including setting standard vesting and/or
settlement terms for share unit and stock option grants which align
optionees’ interests with longer term growth of the
Company;
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●
Acknowledging the
Board’s role in overseeing compensation policies and
practices and exercising discretion to adjust payouts up or down;
and
●
Prohibiting Denison’s
directors and officers from purchasing financial instruments that
are designed to hedge or offset a decrease in market value of the
Shares.
Compensation
Decision-Making
At the beginning
of each year, the Board reviews the Company’s performance and
the analysis and recommendations of the Compensation Committee in
respect of NEO compensation. As applicable, the Compensation
Committee provides to the Board (a) its assessment of the
competitiveness of base salaries within Denison's peer group, (b)
its recommendations for annual performance incentives for the
Company’s executives, based on the prior year’s
performance of such executives and the Company as a whole, and (c)
its recommendations regarding base salaries, long term incentive
awards and annual performance objectives for the current fiscal
year.
The Compensation
Committee reviews all of Denison’s policies and programs
relating to executive compensation and makes recommendations to the
Board. This process involves:
|
●
Benchmarking
and Executive Incentive Bonus Plan review
|
The Compensation
Committee periodically reviews Denison’s compensation
practices against a peer group of companies to ensure that the
Company’s compensation is in line with industry. At the same
time, the Compensation Committee reviews the Executive Incentive
Bonus Plan (the “
Bonus
Plan
”) annually and considers if any modifications are
required.
|
|
●
Establishing
objectives to measure performance
|
The objectives of
the CEO are reviewed by the Compensation Committee and recommended
to the Board for ultimate approval. The Compensation Committee
reviews and approves the annual objectives of the other
NEOs.
|
|
●
Evaluating
performance
|
The performance
of the CEO is reviewed by the Compensation Committee. The
performance of the other NEOs is reviewed by the CEO and reported
to the Compensation Committee.
|
|
●
Determining
compensation packages
|
The CEO’s
base salary and bonus grants are calculated, reviewed by the
Compensation Committee and recommended to the Board for ultimate
approval. The base salaries and bonuses of the other NEOs are
reviewed and approved by the Compensation Committee. The Board
approves all equity based grants.
|
Compensation
Consultant Advice
In connection
with the appointment of David Cates as its new President and CEO in
2015, Denison retained the services of Global Governance Advisors
("
GGA
") to review the
compensation of the President and CEO and to provide insight
regarding market best practices for CEO severance provisions and
one-time equity awards upon promotion.
In 2017, Denison
again retained the services of GGA to review and report on the
competitiveness of the Company’s long-term incentive plan,
after the Company received feedback from certain investors,
suggesting the Company’s management could hold more equity in
the Company.
Benchmarking
Denison seeks to
provide competitive total compensation packages to its executive
officers to ensure that it attracts and retains the most talented
individuals. Accordingly, the Compensation Committee relies on
input from independent compensation advisors from time to time and
other outside information, including the insight of Board members.
Denison’s target compensation position is the median against
a peer group of similar type and size of Canadian mining
companies.
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In early 2017,
Denison retained the services of GGA to review the Company’s
peer group, assess the Company’s long term incentive plan and
to provide insight regarding the typical pay mix for CEOs within
the peer group. Included in the report was a digest of the mix of
CEO pay amongst salary, short and long term incentive, as well as
share ownership levels of the CEOs included in the peer
group.
The following
criteria were used in creating the Company’s peer group:
North American-based companies, with a preference for Canadian
headquartered companies listed on the TSX, at the pre-production
stage of development, focused on exploration and development of
precious metals or other minerals with three or more current
expansion projects and generally of a similar size (0.5x to 2.0x)
in terms of total assets and market capitalization. Based on these
factors, it was determined that the following companies were
suitable peer comparators for consideration in determining levels
of senior executive compensation: Alexco Resources Corp., Energy
Fuels Inc., UR-Energy Inc., Largo Resources Inc., NexGen Energy
Ltd., Roxgold Inc., Fission Uranium Corp., Seabridge Gold Inc.,
Continental Gold Inc., Sabina Gold & Silver Corp., Lundin Gold
Inc., Altius Minerals Corporation, Polymet Mining Corp., Premier
Gold Mines Limited, Mountain Province Diamonds Inc. and Platinum
Group Metals Ltd.
The results of
the 2017 benchmarking review by GGA illustrated that the
Company’s current pay mix was disproportionately weighted to
base pay, as compared to its peers, and that the long term
incentive portion of the pay mix was lacking. Accordingly, the
Compensation Committee made modifications to its approach for the
issuance of long term incentive awards, with a focus on the
issuance of equity compensation in the form of stock options and
share units. Going forward, the Compensation Committee will
continue to evaluate the overall appropriateness of the
Company’s NEO compensation.
Executive
Compensation-Related Fees
Fees of (a)
$16,800 were paid to GGA for services rendered to the Company in
2015 and, (b) $13,808 were paid to GGA for services rendered to the
Company in 2017.
Compensation Framework
The Company uses
three key compensation components to achieve the executive
compensation program’s objectives: base salary, annual
performance incentive and long-term incentive.
Base Salary
Base salary is a
fixed component of pay that compensates executives for fulfilling
their roles and responsibilities and aids in attracting and
retaining the qualified executives. Base salaries are reviewed
annually to ensure that they reflect how an individual fulfills his
responsibilities and to ensure that Denison’s compensation
stays competitive.
Annual Performance Incentives
Denison’s
annual performance incentive is a short-term variable element of
compensation in the form of a cash bonus. Based on a recommendation
of the Compensation Committee, Denison’s Board has approved
the Bonus Plan for Denison’s CEO, CFO and Vice-Presidents.
Depending on an executive’s position within the Company, his
or her bonus represents a varying percentage of his or her target
total compensation. Denison’s most senior executives have the
highest amount and proportion of annual incentive compensation as
follows:
CEO
–
up to 80% of base
salary
CFO
–
up to 50% of base
salary
VP
–
up to 40% of base
salary
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|
The stated
goal of Denison’s compensation program is to improve
Shareholder value through sustainable corporate performance.
Linking corporate and personal performance to support this goal,
Denison has incorporated two performance measures into its bonus
calculations:
|
|
Corporate performance is
based on quantitative performance measures, while the individual
component is both qualitative and quantitative.
|
1. Corporate
performance
2. Individual
performance
Corporate Performance
Measures:
Denison has chosen to measure
corporate performance using recognized and objective measurements
for Shareholders:
Shareholder Return (SR)
measures, on the last day of the year, how well management has
enhanced Denison’s Share price.
Shareholder Return Relative to
Industry (SRI)
measures the
return of Denison’s Shareholders relative to the uranium
industry’s return to shareholders.
The annual target
for SR is set at the beginning of the year and determined by the
CEO in consultation with the Compensation Committee. The actual
Corporate Performance Measures will be determined at the end of the
fiscal year and measure performance for that year. To eliminate the
impact of a single trade at the close of the trading day, the share
price used to evaluate SR and SRI will generally be the single day
volume weighted average on the last trading day of the year. The
allocation of the Corporate Performance measure is 50% to the SR
measure and 50% to the SRI measure.
For 2017 and prior periods, industry return was
assessed with reference to the Global X Uranium ETF, an investment
fund listed on NYSE Arca. In 2018, the Global X Uranium ETF made
substantial changes to its portfolio, as a result of which the
Compensation Committee felt it no longer represented an appropriate
benchmark to the industry in which the Company operates. As a
result, the Compensation Committee has amended its approach to the
calculation of SRI under the Executive Incentive Bonus Plan, by
annually selecting a peer group of five directly comparable
companies, expected to be the five largest pure uranium producers,
developers and/or explorers with a market capitalization under $3
billion (small to mid-cap range) (the “
SRI Peer
Group
”). For 2018, the
SRI Peer Group was comprised of NexGen Energy Ltd., Fission Uranium
Corp., Uranium Energy Corp., Berkeley Energia Limited, and Energy
Fuels Inc., which collectively hold assets in Canada, the United
States and Europe and have a combined market capitalization of
approximately $2.2 billion.
Individual Performance
Measures:
Denison’s qualitative
performance measurements reflect the performance of individuals and
their teams in meeting Denison's annual business objectives. They
include health, safety and environment metrics, budget cost control
and execution of key business activities. For example, if in any
year the Company suffers a fatality at any of its operations, the
performance measurement of health, safety and environment component
of the individual performance measure will be assessed at 0% for
all executives under the plan.
Each year, the
CEO meets with the executives to develop a set of Individual
Performance Measures and to set objectives for the year, which are
then presented to and approved by the Compensation Committee. The
CEO also presents his Individual Performance Measures to the
Compensation Committee for recommendation to the Board for
approval.
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Bonus Weighting and Proportions
The following are
the performance measure categories, and their weighting, for each
executive.
|
|
Corporate
(%)
|
Individual
(%)
|
|
CEO
|
70
|
30
|
|
CFO
|
60
|
40
|
|
VP
|
50
|
50
|
For each
Performance Measure, there are three levels of
achievement:
|
|
Base
Target
|
Stretch
Target
|
Breakthrough
Target
|
|
CEO
|
Up to
50%
|
60%
|
80%
|
|
CFO
|
Up to
30%
|
40%
|
50%
|
|
VP
|
Up to
20%
|
30%
|
40%
|
Long-Term Incentives
Equity based
compensation, such as stock option and share unit grants to
executives, play an important role in helping Denison meet the
objectives of its compensation program. Equity compensation rewards
long-term growth and an appreciation in Share price, thus creating
Shareholder value. Additionally, equity compensation is commonplace
in the Canadian mining industry and is an important part of keeping
Denison’s compensation competitive with that of its
peers.
The Compensation
Committee has a “
Stock Based
Compensation Grant Policy
”, as amended by approval of
the Board on March 8, 2018 (the “Grant Policy”), which
provides for a uniform granting practice for eligible employees at
Denison. Under the Grant Policy, equity grants are made annually
following the release of year end results.
For stock
options, the exercise price will be set in accordance with the
Option Plan and the Company’s Disclosure Policy. The Option
Plan is described in detail starting on page 43 of this Circular.
All options granted pursuant to the Grant Policy have a five year
term, with half of the options granted vesting on the first
anniversary of the grant, with the remainder vesting on the second
anniversary of the grant.
Under the
Company’s Share Unit Plan, share units can be granted as
Restricted Share Units (where the Shares typically vest after the
passage of a pre-determined amount of time) or Performance Share
Units (where the Shares will only become issuable if, at the time
of vesting, certain pre-determined performance conditions have been
met). Any such grants would be in keeping with the policies of the
Compensation Committee, and in keeping with the provisions of the
Grant Policy and Share Unit Plan. The Share Unit Plan is described
in detail starting on page 44 of this Circular.
The magnitude of
an equity compensation grant for an employee is based
on:
(a)
Scope of
Role & Responsibility
: an employee’s level of
responsibility and ability to impact the Company’s results;
and
(b)
Individual
and Corporate Performance
: the assessment of individual and
corporate performance (as detailed above) is a factor in
determining the quantity of equity compensation to be granted to
Denison’s executive officers, linking the magnitude of equity
based compensation to the objectives and achievements of each
executive officer.
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Compensation of Named Executive Officers
The table below
is a summary of base salary, incentive-based awards and other
compensation awarded to the NEOs in the last three financial
years.
Summary Compensation Table
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Share-based
awards
1
($)
|
Option-based
awards
2
($)
|
Non-equity
Annual Incentive Plans
3
($)
|
All other compensation
4
($)
|
Total
compensation
($)
|
|
David D.
Cates
President and
CEO
|
2018
2017
2016
|
306,300
300,000
270,000
|
627,900
Nil
Nil
|
130,251
457,042
34,246
|
147,630
55,500
135,950
|
25,343
25,427
24,293
|
1,237,424
837,969
464,489
|
|
Mac
McDonald
Vice President,
Finance & CFO
|
2018
2017
2016
|
253,210
248,000
220,000
|
460,850
Nil
Nil
|
106,856
345,871
27,082
|
82,040
43,650
80,520
|
22,874
22,668
19,954
|
925,830
660,189
347,556
|
|
Peter
Longo
Vice President,
Project Development
|
2018
2017
2016
|
249,660
245,000
240,000
|
255,450
Nil
Nil
|
39,516
161,222
21,661
|
99,870
36,260
66,840
|
14,752
14,686
14,303
|
659,248
457,168
342,804
|
|
Michael
Schoonderwoerd
Vice President,
Controller
|
2018
2017
2016
|
197,680
193,610
189,620
|
209,950
Nil
Nil
|
30,987
119,791
15,012
|
48,530
26,810
46,450
|
27,055
24,671
23,542
|
514,112
364,882
274,624
|
|
Dale
Verran
Vice President,
Exploration
|
2018
2017
2016
|
213,990
210,000
184,000
|
252,972
Nil
Nil
|
33,185
119,104
13,104
|
50,070
32,130
46,090
|
13,325
13,287
12,063
|
563,542
374,521
255,257
|
Notes to
Summary Compensation Table:
1.
Granted pursuant to the Share
Unit Plan and ratified by Shareholders on May 3, 2018. The fair
value has been determined using the closing price of
Denison’s shares on May 2, 2018 of $0.65 per share (i.e. the
closing price on the trading day prior to the accounting grant date
of May 3, 2018).
2.
This amount represents the
fair value, on the date of grant, of awards made under the Option
Plan for the applicable financial year. The grant date fair value
has been calculated using the Black Scholes option-pricing model.
The key assumptions and estimates used for the calculation of the
grant date fair value under this model include the risk-free
interest rate, expected stock price volatility, expected life and
expected dividend yield. Reference is made to the disclosure
regarding the Option Plan in Note 21 in the Consolidated Financial
Statements for the Year Ended December 31, 2018 available on SEDAR
and EDGAR.
3.
These amounts were earned in
the fiscal year noted and were paid in the following fiscal year.
For 2018, 50% of the NEO bonuses were paid in cash, with 50% of the
bonuses paid by a special grant of restricted share units (see page
38 for more details). For each of 2016 and 2017, 25% of the NEO
bonuses were paid in cash, with 75% of the NEO bonuses paid by a
special grant of stock options and/or restricted share
units.
4.
These amounts consist of car
allowance, travel-to-work or parking benefits, life insurance
premiums and retirement savings benefits. The retirement savings
benefits component exceeds 25% of the benefits included under the
heading “All Other Compensation”, in 2018, 2017 and
2016, respectively as applicable, as follows (i) for Mr. Cates:
$12,252, $12,000, $10,800; (ii) for Mr. McDonald: $10,128, $9,920,
$8,800; (iii) for Mr. Longo: $9,987, $9,800, $9,600; (iv) for Mr.
Schoonderwoerd: $13,837, $12,343, $11,377; and (v) for Mr. Verran:
$8,560, $8,400, $7,360.
None of the NEOs
received any non-equity awards under a long-term incentive plan,
and the Company does not have any defined benefit or actuarial
plans for active employees.
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Five-Year Trend Discussion
The annual
compensation in the graphs below reflect total compensation for the
CEO and the four other NEOs disclosed each year, rather than
compensation from 2014 to 2018 for the current NEOs who may not
have been NEOs in prior years. For example, the total compensation
for Ron Hochstein, Mr. Cates' predecessor, is included in the above
graph. The total compensation of Mr. Cates in his former role of
Chief Financial Officer of the Company, is also included in
“Other NEO Pay” in 2014.
Base Salaries:
After
consultation with GGA on NEO Compensation in 2015, the Compensation
Committee approved moderate increases in salary compensation for
the NEOs for 2016. In 2017, the Compensation Committee deemed a
further modest increase in salary compensation appropriate, in
consideration of the team’s achievements. For 2018, the
Compensation Committee approved only a cost of living adjustment
for each NEO base salary.
With respect to
the changes for each NEO, Mr. Cates became CFO on January 1, 2013,
and the Compensation Committee did not make any adjustment to Mr.
Cates’s base compensation in 2014 and early 2015 in his role
as CFO, except for minor cost of living increases. In connection
with his promotion to President and CEO in 2015, the Compensation
Committee approved a 33.9% increase in Mr. Cates' salary,
increasing it to $250,000. Mr. Cates’ salary was later
increased to $270,000 for 2016 and $300,000 for 2017, in response
to industry benchmarking and corporate achievements, with a small
cost of living adjustment increasing it to $306,300 for
2018.
When Mr. McDonald
was appointed CFO on March 23, 2015 his salary was set at $205,000
and he received increases to $220,000 in 2016 and $248,000 in 2017
to bring his salary closer to market benchmarks, with a cost of
living adjustment to $253,210 in 2018. Mr. Longo joined the Company
in 2014, and his compensation was set at $235,000. No adjustment
was made to his salary until an increase to $240,000 for 2016,
$245,000 for 2017 and $249,660 for 2018. Mr. Schoonderwoerd was
appointed Vice President Controller on January 1, 2013. In 2016,
Mr. Schoonderwoerd's salary was $189,610, which was modestly
increased to $193,610 in 2017 and $197,680 in 2018. Mr. Verran was
appointed VP Exploration and became an NEO effective January 1,
2016, with a salary of $184,000, which was increased to $210,000 in
2017 and $213,990 in 2018.
Equity Compensation:
In part due to
investor feedback suggesting that the Company’s relatively
young roster of NEOs could hold more equity in the Company, GGA was
engaged in March 2017 to provide a report, in part, on the
competitiveness of the Company’s long-term incentive plan.
After consideration, the Compensation Committee approved both an
“ordinary” grant of options (with the grant of
2,065,000 options to NEO’s in accordance with the
Company’s Stock Option Grant Policy) and a
“special” grant of options (with the additional grant
of 1,735,000 stock options) in 2017, thereby increasing the
NEOs’ stake in the Company’s equity. As a result,
equity compensation saw a larger than typical increase in 2017. The
“special” grant of options was also intended to
compensate NEOs for what was assessed as under-optioning the
previous year, based on the most recent benchmarking provided by
GGA.
In addition, the
Compensation Committee considered the form of equity being issued
pursuant to the Company’s long-term incentive plan with
reference to the March 2017 GGA report, which noted that the grant
of share units under a share unit plan would assist management in
increasing their respective share ownership levels in response to
investor feedback. As a result, the Company’s Share Unit
Plan, providing for the issuance of Restricted Share Units and
Performance Share Units was adopted in March, 2018 and each NEO
received a grant of both Performance Share Units, intended to be a
one-time special grant to increase NEO equity holdings, and
Restricted Share Units, as part of the annual bonus assessment. As
a result, equity compensation saw another larger than typical
increase in 2018.
There were no
options or other equity compensation held by the NEOs that were
re-priced downward during the most recently completed financial
year of the Company.
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Performance Graphs
Cumulative Value of $100 Investment
The following
graph compares the cumulative total shareholder return for $100
invested in the Shares on the Toronto Stock Exchange for the
Company’s five most recently completed financial years with
the cumulative total shareholder return of the TSX S&P/TSX
Composite Index for the same period.
The Share
performance as set out in the graph does not necessarily indicate
future price performance. The Shares trade on the TSX under the
symbol “DML”.
Data supplied
by the TSX.
Five-Year Trend in NEO Total Compensation
Compared to Denison Cumulative Value of $100
Investment
To evaluate the
trend in Denison compensation levels in relation to Share
performance as measured in the graph above, Denison relied on the
total annual compensation awarded for fiscal years 2015 through
2018 on the same basis as is currently disclosed in the
“Summary Compensation Table” above, using the fiscal
year 2014 as a base amount for comparing changes in compensation
over time.
Denison Share
data supplied by the TSX.
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Annual Performance Incentives
Denison's NEOs
were eligible to receive a bonus for the year ended December 31,
2018, in accordance with the Company’s Bonus Plan. As
previously discussed, computation of bonuses is based on
assessments of corporate and individual performance.
2018
Corporate Performance
As explained on
page 31 of the Circular, Corporate Performance Measures are
assessed by looking at Shareholder Return (SR) and Shareholder
Return Relative to Industry (SRI). The Compensation Committee had
set a base target of 10% SR for 2018. For SRI, the performance of
the Company’s selected SRI Peer Group is used as the bench
mark for measuring industry performance. In 2018, the market cap
weighted share price performance of the SRI Peer Group (when
comparing their share price on the last trading day of the year in
2017 against 2018) was -25.21%.
When the
Compensation Committee assessed the Company’s performance in
2018, it determined that Denison’s SR for the year was -6.7%.
This performance was below the 10% SR target, but significantly
exceeded the SRI benchmark of -25.21%. As a result, a bonus on
account of SRI (which, in the aggregate for all NEOs was $189,880)
was approved to be paid.
2018
Individual Performance
In March 2018,
the Board of Directors approved individual objectives for Mr. Cates
upon the recommendation of the Compensation Committee. In March
2019, the Compensation Committee assessed Mr. Cates' performance
against these objectives to determine his entitlement under the
Bonus Plan. The Committee determined that Mr. Cates had
substantially completed his objectives, and the results of the
Committee’s review are summarized, in part, as
follows:
|
Objective
|
|
Assessment
|
|
1. Drive
the development of the Wheeler River project consistent with the
Company’s objective of becoming the next uranium producer in
the Athabasca Basin.
|
√
|
●
In September 2018, the
Company announced the results of its Pre-Feasibility Study for
Wheeler River (“
PFS
”). The results of the PFS were
very positive, with the Phoenix deposit positioned as the lowest
cost uranium development asset in the world.
●
Wheeler was well positioned
to commence the Environmental Assessment process and continue the
consultation process with local communities.
|
|
2. Maximize
the Company’s outcome with respect to the dilution and/or
acquisition of Cameco Corporation’s interest in the Wheeler
River project.
|
√
|
●
Successfully acquired
Cameco’s approximate 24% interest in the Wheeler River
project in exchange for the issuance of 24.6 million Shares,
representing less than 4.5% of the Company’s issued and
outstanding Shares.
|
|
3. Obtain
financing to fund continued exploration and evaluation activities
at Wheeler River and other high priority properties to the end of
2019 and beyond.
|
√
|
●
Obtained financing for 2019
exploration program with closing of $5,000,000 bought deal private
placement of flow-through Shares in November 2018.
|
|
4. Meet or
surpass operating plan / budget objectives, including by
maintaining or increasing the sources of internally generated cash
flows and reducing expenditures.
|
√
|
●
Bolstered DES’s
pursuit of business opportunities, with the appointment of a
Business Development Manager.
●
Achieved Corporate G&A
savings in 2018.
|
|
5. Enhance the scope of the Company’s
investor relation and stakeholder relation
activities.
|
√
|
●
Successfully rolled out new
corporate website and presentations during 2018.
●
Hiring of Tim Gabruch, VP
Commercial, whose industry expertise has been relied upon as a
touch point for Shareholders with in-depth questions about the
uranium market.
|
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6. Continue
to instill a culture of 100% regulatory EH&S
compliance
|
|
●
Consistently positive
Environment, Health and Safety reports continue to speak to
Denison’s overall commitment to a culture of 100% regulatory
and environmental compliance.
|
|
7. Continue
to instill a culture of 100% ethical business conduct and zero
tolerance
|
√
|
●
Denison continues to be
committed to maintaining a culture of 100% ethical business conduct
and a reputation amongst industry participants and regulators as
being highly reputable and ethical.
|
Each of the other
NEO's eligible for a bonus for 2018 set individual performance
objectives for 2018, and the Compensation Committee assessed their
performance against these objectives for determining entitlement
under the Bonus Plan.
In looking at Mr.
McDonald's performance over 2018, the Compensation Committee
determined that Mr. McDonald exceeded his bonus targets on all of
his objectives. Among targets which he surpassed, Mr. McDonald (a)
was a key contributor to corporate development, capital raising,
investor relations and other strategic activities during the year;
(b) assisted the project development team with the completion of
the economic model for the PFS for Wheeler River, including tax
impacts and after-tax valuation modeling; and (c) finalizing the
DES finance team structure, including process and controls and
monthly reporting.
The Compensation
Committee concluded that Mr. Longo significantly outperformed
against the majority of his objectives in 2018. Mr. Longo was
determined to have exceeded his objectives relating to (a) the
completion of the PFS, including breakthrough reductions in
previously estimated operating and capital expenditures, the
results of which suggest that the Company’s Phoenix deposit
at Wheeler River could be the lowest cost uranium mining operation
in the world; and (b) continued community consultation and the
advanced preparation related to the Environmental Impact Assessment
process, which is an important next step in the advancement of the
Wheeler River project.
The Compensation
Committee determined that Mr. Schoonderwoerd exceeded expectations
during 2018 in respect of the majority of his objectives, most
notably (a) development of the PFS economic model, and working
directly and actively with all project development team
stakeholders and carrying out detailed reviews of consultant cost
estimates; (b) successfully implemented critical financial
reporting projects, including the Company’s change in
reporting currency from US dollars to Canadian dollars; and (c)
continued ownership of the Company’s tax reporting and
compliance responsibilities.
The Compensation
Committee also considered Mr. Verran’s performance in 2018
against his objectives and concluded that Mr. Verran had
outperformed against most of his objectives in 2018. Mr. Verran and
the exploration team were successful in (a) discovering new
mineralization at the Company’s high priority and pipeline
projects; (b) participating in corporate initiatives, promoting the
Company’s technical capabilities and building the
Company’s reputation as a leader in uranium exploration; and
(c) meeting and exceeding exploration cost targets on an
“all-in” dollars per metre drilled basis.
All NEOs were
recognized as exceeding their objectives in 2018 relating to health
and safety, as the Company had no lost time accidents and was 100%
compliant with applicable environmental and health and safety laws
and regulations.
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Based on the
foregoing, the assessment of the following NEOs’ bonus
entitlement was:
|
Name
|
Corporate
Calc./Max
|
Individual
Calc./Max
|
Total
Calc./Max
|
|
David
Cates
|
28.0% /
56.0%
|
20.2% /
24.0%
|
48.2% /
80.0%
|
|
|
$85,760
|
$61,870
|
$147,630
|
|
Mac
McDonald
|
15.0% /
30.0%
|
17.4% /
20.0%
|
32.4% /
50.0%
|
|
|
$37,980
|
$44,060
|
$82,040
|
|
Peter
Longo
|
10.0% /
20.0%
|
30.0% /
20.0%
|
40.0% /
40.0%
|
|
|
$24,970
|
$74,900
|
$99,870
|
|
Mike
Schoonderwoerd
|
10.0% /
20.0%
|
14.6% /
20.0%
|
24.6% /
40.0%
|
|
|
$19,770
|
$28,760
|
$48,530
|
|
Dale
Verran
|
10.0% /
20.0%
|
13.4% /
20.0%
|
23.4% /
40.0%
|
|
|
$21,400
|
$28,670
|
$50,070
|
It was determined
by the Compensation Committee and the Board, on a recommendation
from management, that the bonus entitlements be paid to the NEOs by
way of a combination of cash (50%) and equity compensation (50%),
as outlined below. Management’s approach provides for further
equity investment in the Company by the NEO’s, and allows for
conservation of the Company’s cash for investment in the
Company’s 2019 objectives.
|
Name
|
Total
Bonus($)
|
Cash
Portion($)
|
Equity
Portion($)
|
Bonus
RSUs to be Granted
(1)
(#)
|
|
David Cates
|
$147,630
|
$73,815
|
$73,815
|
154,000
|
|
Mac McDonald
|
$82,040
|
$41,020
|
$41,020
|
86,000
|
|
Peter Longo
|
$99,870
|
$49,935
|
$49,935
|
104,000
|
|
Michael Schoonderwoerd
|
$48,530
|
$24,265
|
$24,265
|
51,000
|
|
Dale Verran
|
$50,070
|
$25,035
|
$25,035
|
52,000
|
|
Total
|
$428,140
|
$214,070
|
$214,070
|
447,000
|
Note:
1.
The RSUs to be granted in
lieu of cash bonus compensation were valued at approximately $0.48
per Share Unit, based on a $0.63 Share price at December 31, 2018
and an estimated present value of the Shares to vest under the RSUs
over the three year vesting period at an annual discount rate of
15%.
Long Term Incentive Plan Awards
In prior years,
the Company employed two forms of incentive plans to award its
employees for individual and Company performance, namely
option-based awards and non-equity based awards in the form of cash
bonuses. In March 2018, the Board adopted the Share Unit Plan and
granted share-based incentives. See “Equity Compensation
Plans” below, for more information.
Outstanding Equity-Based Awards
The following
table sets out for each NEO the number and value of their options
and share units outstanding on December 31, 2018. No share
units were vested in 2018.
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|
|
Option-based
Awards
|
Share-based
Awards
|
|
Name
|
Shares underlying unexercised options (#)
|
Option
exercise price ($)
|
Option
expiration date
|
Value of unexercised in-the- money options ($)
1
|
Unvested
Share Units (#)
|
Market or
payout value of unvested Share Units ($)
2
|
|
David
Cates
|
91,000
|
1.82
|
Mar 5,
2019
|
Nil
|
316,000
RSUs
|
199,080
|
|
|
155,000
|
1.10
|
Mar 6,
2020
|
Nil
|
650,000
PSUs
6
|
409,500
|
|
|
200,000
|
0.55
|
Nov 6,
2020
|
16,000
|
|
|
|
|
355,750
3
|
0.64
|
Mar 10,
2021
|
Nil
|
|
|
|
|
1,927,600
4
|
0.85
|
Mar 10,
2022
|
Nil
|
|
|
|
|
774,214
5
|
0.60
|
Mar 11,
2023
|
23,226
|
|
|
|
Total
|
3,503,564
|
|
|
39,226
|
966,000 SUs
|
608,580
|
|
Mac
McDonald
|
103,000
|
1.01
|
Mar 20,
2020
|
Nil
|
259,000
RSUs
|
163,170
|
|
|
100,000
|
0.55
|
Nov 6,
2020
|
8,000
|
450,000
PSUs
6
|
283,500
|
|
|
260,300
3
|
0.64
|
Mar 10,
2021
|
Nil
|
|
|
|
|
1,400,900
4
|
0.85
|
Mar 10,
2022
|
Nil
|
|
|
|
|
627,181
5
|
0.60
|
Mar 11,
2023
|
18,815
|
|
|
|
Total
|
2,491,381
|
|
|
26,815
|
709,000 SUs
|
446,670
|
|
Peter
Longo
|
82,000
|
1.10
|
Mar 6,
2020
|
Nil
|
93,000
RSUs
|
58,950
|
|
|
80,000
|
0.55
|
Nov 6,
2020
|
6,400
|
300,000
PSUs
6
|
189,000
|
|
|
282,650
3
|
0.64
|
Mar 10,
2021
|
Nil
|
|
|
|
|
728,800
4
|
0.85
|
Mar 10,
2022
|
Nil
|
|
|
|
|
300,500
5
|
0.60
|
Mar 11,
2023
|
9,015
|
|
|
|
Total
|
1,473,950
|
|
|
15,415
|
393,000 SUs
|
247,590
|
|
Michael
|
62,000
|
1.82
|
Mar 5,
2019
|
Nil
|
73,000
RSUs
|
45,990
|
|
Schoonderwoerd
|
74,000
|
1.10
|
Mar 6,
2020
|
Nil
|
250,000
PSUs
6
|
157,500
|
|
|
80,000
|
0.55
|
Nov 6,
2020
|
6,400
|
|
|
|
|
126,550
3
|
0.64
|
Mar 10,
2021
|
Nil
|
|
|
|
|
533,200
4
|
0.85
|
Mar 10,
2022
|
Nil
|
|
|
|
|
229,748
5
|
0.60
|
Mar 11,
2023
|
6,892
|
|
|
|
Total
|
1,105,498
|
|
|
13,292
|
323,000 SUs
|
203,490
|
|
Dale
Verran
|
29,000
|
1.82
|
Mar 5,
2019
|
Nil
|
111,432
RSUs
5
|
70,202
|
|
|
29,000
|
1.10
|
Mar 6,
2020
|
Nil
|
300,000
PSUs
6
|
189,000
|
|
|
80,000
|
0.55
|
Nov 6,
2020
|
6,400
|
|
|
|
|
63,000
|
0.64
|
Mar 10,
2021
|
Nil
|
|
|
|
|
529,900
4
|
0.85
|
Mar 10,
2022
|
Nil
|
|
|
|
|
192,900
5
|
0.60
|
Mar 11,
2023
|
5,787
|
|
|
|
Total
|
923,800
|
|
|
12,187
|
411,432 SUs
|
259,202
|
Notes for
Outstanding Option-Based Awards:
1.
Option values have been
calculated using the closing price of the Shares on the TSX on
December 29, 2018 (last trading date of 2018) of $0.63 per share,
less the applicable exercise price of the outstanding options. As
at December 31, 2018, some of the above options had not fully
vested. The above value of unexercised in-the-money options has
been computed assuming that all of the options have
vested.
2.
Share unit values have been
calculated using the closing price of the Shares on the TSX on
December 31, 2018 (last trading date of 2018) of $0.63 per
share.
3.
Comprised in part of a
special stock option grant to each NEO in lieu of cash payments, on
account of NEO 2015 bonuses: Cates, 198,750; McDonald, 135,300;
Longo, 185,650; and Schoonderwoerd, 56,550.
4.
Comprised in part of special
stock option grants to each NEO (a) in lieu of cash payments, on
account of NEO 2016 bonuses: Cates, 477,600; McDonald, 282,900;
Longo, 234,800; Schoonderwoerd, 163,200; and Verran, 161,900; and
(b) to address investor feedback and increase NEOs’ equity
stake in the Company: Cates, 653,000; McDonald, 520,000; Longo,
237,000; Schoonderwoerd, 172,000; and Verran, 153,000.
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5.
Comprised in part of a
special equity grants to each NEO in lieu of cash payments on
account of NEO 2017 bonuses: Cates, 198,214 options; McDonald,
154,181 options; Longo, 129,500 options; Schoonderwoerd, 95,748
options; and Verran, 45,900 options and 31,432 RSUs.
6.
Special grant of performance
share units in 2018, as approved by Shareholders on May 3, 2018, to
further address investor feedback and increase NEOs’ equity
stake in the Company.
Value Vested or Earned during 2018
The table below
sets out information concerning the value of incentive plan awards,
including option-based and non-equity incentive plan compensation,
vested or earned during the financial year ended December 31, 2018
for each NEO.
|
Name
|
Option-based awards Value vested during year
($)
1
|
Share-based awardsValue vested during year
($)
|
Non-equity incentive plan compensation – Value earned during
the year
($)
|
|
David D.
Cates
|
(248,065)
|
Nil
|
147,630
|
|
Mac
McDonald
|
(180,319)
|
Nil
|
82,040
|
|
Peter
Longo
|
(96,753)
|
Nil
|
99,870
|
|
Michael
Schoonderwoerd
|
(69,181)
|
Nil
|
48,530
|
|
Dale
Verran
|
(67,498)
|
Nil
|
50,070
|
Note for
Value Vested or Earned During 2018:
1.
The option value vested
during the year reflects the aggregate dollar value that would have
been realized if the options that vested in 2018 were exercised on
their vesting date. Numbers in brackets constitute a negative
value. For options, a negative value indicates that the exercise
price of the options exceeds the market value of Denison’s
shares on the vesting date. No share units vested in
2018.
Loans to Executives
As of the date of
this Circular, Denison and its subsidiaries had no loans
outstanding to any current or former NEOs, except routine
indebtedness as defined under Canadian securities
laws.
Compensation on Termination
Messrs. McDonald,
Longo, Schoonderwoerd and Verran all had similar written executive
employment agreements with the Company at the end of the financial
year, which set out their rights in the event of termination,
including termination without cause or termination by the executive
for "Good Reason" (as defined below).
Upon termination
of the employment agreement by either party for any reason, the NEO
shall be paid all compensation earned by him (regardless of whether
yet paid) as of the effective date of termination. In the event
that the NEO's employment is terminated (a) by the Company for a
reason other than just cause or (b) by the NEO in the event of a
Good Reason, the NEO will be entitled to a payment equal to 18
months’ salary and a bonus payment in an amount equal to the
bonus payment earned by such NEO for the fiscal year ending
immediately prior to the effective date of
termination.
Pursuant to Mr.
Cates' executive employment agreement with the Company, upon
termination of the employment agreement by either party for any
reason, Mr. Cates shall be paid all compensation earned by him
(regardless of whether yet paid) as of the effective date of
termination. In the event that Mr. Cates's employment is terminated
(a) by the Company for a reason other than just cause or (b) by Mr.
Cates in the event of a Good Reason, Mr. Cates will be entitled to
(i) a payment equal to 24 months’ salary, (ii) a bonus
payment in an amount equal to the bonus payment earned by Mr. Cates
for the fiscal year ending immediately prior to the effective date
of termination, and (iii) a payment equivalent to 19% of the amount
determined pursuant to (i) as compensation for discontinued
benefits.
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In each contract,
a Good Reason means:
●
the assignment of any duties
inconsistent with the status of the executive's assigned office or
a material alteration in the executive’s duties,
responsibilities, status or reporting relationship;
●
a reduction in the
executive’s annual base salary;
●
requiring the executive to be
based in a different location;
●
any other events or
circumstances which would constitute a constructive dismissal at
common law; or
●
a “change of
control” of the Company. A “change of control”
means (a) the acquisition of control or direction by any holder of
the voting rights of 50% or more of the Shares, (b) a cessation of
the incumbent directors constituting a majority of the Board when
the incumbent directors do not recommend or approve of the
replacement directors, or (c) the approval by the Shareholders of
(i) a business arrangement (such as an amalgamation, arrangement or
merger) not approved by the Board which results in the current
Shareholders immediately thereafter not holding more than 50% of
the Shares; (ii) the liquidation, dissolution or winding up of the
Company; or (iii) the sale, lease or other disposition of all or
substantially all of the assets of the Company.
Pursuant to the
Company's Option Plan, subject to a specific provision in an NEO
employment agreement, all options held by directors and employees
of the Company vest immediately following a change of control,
which is defined in the Option Plan as the acquisition of 30% or
more of the then outstanding Shares or a sale by the Company of
substantially all of its assets. All options are then exercisable
for a period of 60 days following the close of any such
transaction.
Pursuant to the
Share Unit Plan, subject to the provisions of any NEO employment
agreement, all non-performance conditioned SUs vest in the event of
a Termination on Change of Control, (a) all unvested RSUs
outstanding shall immediately vest on the date of such termination;
and (b) all unvested PSUs (with performance criteria outstanding)
shall vest on the date of such termination using an Adjustment
Factor as determined by the Committee. See “Equity
Compensation Plans – Share Unit Plan”.
Pursuant to the
employment agreements for each of Messrs. Cates, McDonald, Longo,
Schoonderwoerd and Verran, if the NEO's employment agreement is
terminated by the Company without cause or by the NEO for Good
Reason, any of such NEO's unvested stock options will automatically
vest and all stock options held by the NEO will be exercisable for
a 90-day period.
The table below
is a summary of the compensation that would have been paid to the
NEOs if any of them had been terminated on December 31, 2018, which
includes situations of termination without cause and termination
without cause in the event of a change of control.
|
Name
|
Separation Pay
($)
|
Bonus Payment
($)
|
Value of In-the- Money Equity
Awards
1,2
($)
|
Payment in lieu of Benefits
($)
|
Total
($)
|
|
David D.
Cates
|
612,600
|
55,500
|
647,806
|
116,394
|
1,432,300
|
|
Mac
McDonald
|
379,815
|
43,650
|
473,485
|
Nil
|
896,950
|
|
Peter
Longo
|
374,490
|
36,260
|
263,005
|
Nil
|
673,755
|
|
Michael
Schoonderwoerd
|
296,520
|
26,810
|
216,782
|
Nil
|
540,112
|
|
Dale
Verran
|
320,985
|
32,130
|
271,389
|
Nil
|
624,504
|
Notes to
Termination Payouts:
1.
Includes the value of options
and share units. See the notes for the “Outstanding
Option-Based Awards” table above for details on
calculations.
2.
The amount shown represents
the incremental value of the NEOs’ unexercised in-the-money
equity as at December 31, 2018, assuming all of the options and
share units have vested. The Company would not be required to make
any cash payment for this amount upon termination of the
NEO.
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EQUITY COMPENSATION PLANS
Denison’s
Option Plan is a fixed number share option plan under which a
maximum of 39,670,000 Shares have been authorized for issuance,
representing 6.73% of the Company’s issued and outstanding
Shares as at December 31, 2018. The Option Plan was first
implemented in 1997, and was amended and updated (with shareholder
and regulatory approval) in 2006 and then again in
2013.
Denison’s
Share Unit Plan is a fixed number share unit plan under which a
maximum of 15,000,000 Shares are authorized for issuance,
representing 2.55% of the Company’s issued and outstanding
Shares as at December 31, 2018. The Share Unit Plan was first
implemented by the Board on March 8, 2018, being ratified and
confirmed by Shareholders at the Annual General and Special Meeting
of Shareholders held on May 3, 2018.
On December 31,
2018, there were an aggregate of 13,865,193 options and 3,400,432
share units outstanding under their respective plans. For the
fiscal years ended December 31, 2016, 2017 and 2018 (a) the annual
burn rate for all of Denison’s equity compensation
arrangements is 0.40%, 1.16% and 1.23%, respectively; and (b) the
annual burn rate for securities issued under the Option Plan is
0.40%, 1.16% and 0.61%, respectively. The Share Unit Plan was first
adopted in 2018, and the annual burn rate for the fiscal year ended
December 31, 2018 was 0.62%.
As at December
31, 2018, the number and price of Shares to be issued under the
Option Plan and Share Unit Plan, and the percentage relative to the
number of issued and outstanding Shares of the Company, was as
follows:
|
Plan
Category
|
Number of
Shares to be Issued upon Exercise of Outstanding Equity
Compensation
(a)
|
The number in (a) as Percentage of Issued and Outstanding
Shares
|
Weighted – Average Exercise Price of Outstanding Equity
Compensation
(b)
|
Number of Shares Remaining Available for Future Issuance Under
Equity Plan
(excluding
Shares reflected in (a))
|
Percentage of Issued and Outstanding Shares
|
|
Equity
Compensation Plans Approved by Shareholders
1
- Option
Plan
- Share Unit
Plan
|
13,865,193
3,400,432
|
2.35%
0.58%
|
$0.83
N/A
4
|
18,395,107
2
11,599,568
3
|
3.12%
1.97%
|
|
Equity
Compensation Plans Not Approved by Shareholders
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
Notes:
1.
The Company’s
Shareholder approved equity plans are the Option Plan and the Share
Unit Plan. Reference is made to the disclosure regarding the Option
Plan and the Share Unit Plan in Note 21 in the Consolidated
Financial Statements for the Year Ended December 31, 2018, which
are available on SEDAR and EDGAR.
2.
The maximum number of shares
issuable under the Option Plan is 39,670,000. As at December 31,
2018, 21,274,893 options had been granted (less cancellations)
since the Option Plan’s inception in 1997.
3.
The maximum number of shares
issuable under the Share Unit Plan is 15,000,000. As at December
31, 2018, 2,200,000 PSUs and 1,200,432 RSUs (less cancellations)
had been granted since the Share Unit Plan’s inception in
March 2018.
4.
The share units issued under
the Share Unit Plan do not have an exercise price and they entitle
the holder to Shares upon vesting and settlement. As at December
31, 2018, the issued and outstanding share units had a fair value
of $0.63, based on the closing price of the Shares on the TSX on
December 31, 2018 (last trading date of 2018) of $0.63 per
share.
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Option Plan
The purpose of
the Option Plan is to attract, retain and motivate the
Company’s directors, officers, key employees and consultants
and to align their interests with those of the Company and its
Shareholders. The Compensation Committee administers grants under
the Option Plan. All grants are subject to the approval of the
Board.
Below are the key
provisions of Denison’s Option Plan:
●
A maximum of 39,670,000
Shares are currently authorized for issuance under the Option
Plan.
●
Denison’s directors,
officers, employees and consultants of the Company or a subsidiary
of the Company or any employee of a management company providing
services to the Company or a subsidiary of the Company are eligible
to participate under the Option Plan.
●
Options cannot have a term of
over ten years; however, since 2011, the Board has adopted a
practice of granting options with five year terms, with vesting in
two equal parts on the first anniversary and the second anniversary
from the grant date. The Compensation Committee takes into account
previous grants when it considers new grants of
options.
●
Grants are typically done
annually. The Board fixes the exercise price of an option at the
time of the grant at the TSX closing price of Shares on the trading
day immediately before the date of the grant, and the exercise
price cannot be lower than this price.
●
If a director, officer or an
employee leaves the Company, all of their options will expire 30
days after they cease to be a director or an employee, except the
expiry period is extended if the options would otherwise expire
during a period of time when trading Shares is restricted. In
certain cases, individual employment agreements may vary vesting
rights and expiry periods upon termination or upon a change of
control. See “Compensation on Termination” starting on
page 40 for more information. The Option Plan provides that options
granted to a consultant will terminate 30 days after the consultant
agreement terminates.
●
The Option Plan does not
provide for a restriction on the maximum number of securities
issuable to any one person or company. However, no more than 10% of
total Shares issued and outstanding can be reserved for issuance to
insiders in a one-year period under the Option Plan and any other
security based compensation arrangement, and no more than 10% of
total Shares issued and outstanding can be issued to all insiders
in a one-year period under the Option Plan and any other share
compensation arrangement. Options cannot be transferred to another
person.
●
The following kinds of
changes require Shareholder approval under the terms of the Option
Plan:
✓
any change to the number of
Shares that can be issued under the plan, including increasing the
fixed maximum number of Shares, or changing from a fixed maximum
number to a fixed maximum percentage of Shares
✓
any change that increases the
number of categories of people who are eligible to receive options,
if it could increase the participation of insiders
✓
the addition of any form of
financial assistance or any amendment to a financial assistance
provision which is more favourable to participants
✓
the addition of a cashless
exercise feature which does not provide for a full deduction of the
number of underlying Shares from the plan reserve
✓
the addition of a deferred or
restricted share unit or any other provision which results in
Shares being received while no consideration is received by
Denison
✓
discontinuance of the Option
Plan
✓
any other amendments that
could lead to a significant dilution of the Company’s
outstanding Shares or may provide additional benefits to
participants under the Option Plan, especially insiders, at the
expense of the Company and its existing Shareholders
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●
No change to the Option Plan
can alter or affect the rights of an option holder in a negative
way without his or her consent, except as described in the Option
Plan.
●
The Board has the power,
subject to regulatory approval where required, to make a limited
number of changes to the Option Plan, including amendments of a
house keeping nature, changes to the vesting provisions of an
option, a change to the termination provisions of an option,
provided that the extension does not go beyond the original expiry
date of the option and add a cashless exercise feature that
provides for a full deduction of Shares from the plan
reserve.
●
The Company prohibits the
giving of financial assistance to facilitate the purchase of Shares
to directors, officers or employees who hold options granted under
the Option Plan.
●
Option grants to the CEO and
the CFO are conditional upon a claw back agreement, whereby each of
them personally agrees to reimburse any portion of their bonus
payment (including options granted pursuant thereto) which is
awarded for achievements that are found to involve their fraud,
theft or other illegal conduct.
Share Unit Plan
The
Company’s goal with equity compensation in general is for it
to act as an important tool to help motivate directors, officers,
key employees and consultants, attract and retain the best people,
and to align the participant’s interests with those of the
Company and its Shareholders. The purpose of the Share Unit Plan is
to update the Company’s equity compensation program, bringing
it in line with current market practices, and to create more
flexibility in the types of incentive awards that may be made to
eligible participants.
The Share Unit
Plan was adopted in March 2018 (and ratified by Shareholders on May
3, 2018), after the Company received feedback from certain
investors suggesting the Company’s management could hold more
equity in the Company. As a result of that feedback, GGA was
requested to provide a report, in part, on the competitiveness of
the Company’s long-term incentive plan. In Part, the GGA
report noted that the grant of share units under a share unit plan
would assist management in increasing their respective share
ownership levels and increase their exposure to the share price, in
a different way than more traditional stock option
ownership.
Below are the key
provisions of Denison’s Share Unit Plan:
●
A maximum of 15,000,000
Shares are currently authorized for issuance under the Share Unit
Plan. This represents 2.55% of the Company’s issued and
outstanding Shares.
●
Participants may be granted
restricted share units (“RSUs”) or performance share
units (“PSUs”) or any combination of the
foregoing.
●
Eligible participants in the
Share Unit Plan are Denison’s directors, officers, employees
and consultants of the Company or an affiliate of the Company or
any employee of a management company providing services to the
Company or an affiliate of the Company.
●
Grants are anticipated to be
done annually.
●
The Committee will approve
the vesting of the RSUs and PSUs, as applicable, at the time of
grant of the applicable Share Units, and each grant letter will
describe the vesting and settlement provisions. The PSUs to be
conditionally granted under the Share Unit Plan will vest over five
years, based upon the achievement of the performance vesting
conditions. The RSUs conditionally granted under the Share Unit
Plan will have a ratable vesting over three years.
●
Share Units will be settled
on the first business day following the applicable vesting date,
unless the holder of the Share Unit has elected to defer
settlement.
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●
Participants shall be
entitled to elect, by written notice to the Company, to defer the
settlement of their Share Units until the date which is the earlier
of (i) the date to which the participant has elected to defer
receipt of Shares in accordance with Section 3.4 of the Share Unit
Plan; and (ii) the date of the Participant’s Retirement,
Resignation, Termination with Cause or Termination Without Cause or
Termination after Change of Control of the Company (as each term is
defined in the Share Unit Plan).
●
The Committee will have the
option, at the time of the grant of the Share Units, to allow a
participant to elect to settle their Share Units in cash instead of
Shares issued from treasury. If, at the time of settlement, the
participant elects to settle in cash, the cash payment will be
determined by the number of Shares the participant would be
eligible to receive multiplied by the market value, as calculated
in accordance with the Share Unit Plan. The Company has the right
to override the participant’s election and settle such RSUs
or PSUs in shares issued from treasury. If a participant has
elected to defer settlement, they will no longer be entitled to
elect to receive cash on settlement of their Share
Units.
●
Subject to the terms of the
grant letter or a participant’s employment
agreement:
●
in the event of Termination
Without Cause: (a) if the participant has been continuously
employed for at least two years, (i) any unvested RSUs will
automatically vest and become available for settlement, and (i) the
unvested PSUs will vest using an Adjustment Factor as determined by
the Board, and (b) if the participant has been continuously
employed for less than two years, all of the unvested RSUs and PSUs
shall become void and the participant shall have no entitlement to
the issuance of Shares under such Share Units.
●
in the event of the
Retirement of a participant, their unvested Share Units will
automatically vest on the date of Retirement and the Shares
underlying such Share Units will be issued to the participant as
soon as reasonably practical thereafter.
●
in the event of the death of
a participant, their unvested Share Units will automatically vest
on the date of death and the Shares underlying all Share Units will
be issued to the participant’s estate as soon as reasonably
practical thereafter.
●
in the event of the
disability of a participant (as may be determined in accordance
with the policies, if any, or general practices of the Company or
any subsidiary), any of their unvested Share Units will
automatically vest on the date on which the participant is
determined to be totally disabled and the Shares underlying the
Share Units held will be issued to the Participant as soon as
reasonably practical thereafter.
●
in the event of a Termination
on Change of Control, (a) all unvested RSUs outstanding shall
immediately vest on the date of such termination; and (b) all
unvested PSUs (with performance criteria outstanding) shall vest on
the date of such termination using an Adjustment Factor as
determined by the Committee.
●
Except pursuant to (a) a will
or by the laws of descent and distribution, or (b) any registered
retirement savings plans or registered retirement income funds of
which the participant is and remains the annuitant, no Share Unit
and no other right or interest of a participant is assignable or
transferable.
●
Unless the Company has
received requisite shareholder approval, under no circumstances
shall the Share Unit Plan, together with all other security based
compensation arrangements of the Company (including the Option
Plan), result, at any time, in: (i) the aggregate number of Shares
reserved for issuance to insiders (as a group) at any point in time
exceeding 10% of the Company’s issued and outstanding Shares;
(ii) the issuance to insiders (as a group), within a
one
‐
year period, of
an aggregate number of Shares exceeding 10% of the Company’s
issued and outstanding Shares; (iii) the aggregate number of Shares
reserved for issuance to all non
‐
employee directors of the
Company exceeding 1% of the Company’s issued and outstanding
Shares; or (iv) the grant to any individual non
‐
employee director of the Company
of more than $150,000 worth of Shares annually. Subject to
compliance with the foregoing, the Share Unit Plan does not provide
for a restriction on the maximum number of securities issuable to
any one person or company.
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●
Shareholder and applicable
stock exchange approvals will be required for any amendment,
modification or change to the provisions of the Share Unit Plan
which would:
✓
materially increase the
benefits to the holder of the Share Units who is an Insider to the
material detriment of the Company and its
shareholders;
✓
increase the maximum number
of Shares which may be issued from treasury pursuant to Share Units
granted pursuant to the Share Unit Plan (other than by virtue of
adjustments pursuant to the Share Unit Plan);
✓
extend the expiry date for
Share Units granted to Insiders under the Share Unit
Plan;
✓
permit Share Units to be
transferred, other than for normal estate settlement purposes or
transfers to any registered retirement savings plans or registered
retirement income funds of which the participant is and remains the
annuitant;
✓
remove or exceed the Insider
participation limits set forth in the Share Unit Plan;
✓
amend the definition of
“Participant” to allow for additional categories of
Participants or otherwise materially modify the eligibility
requirements for participation in the Share Unit Plan;
or
✓
modify the amending
provisions in section 4.5 of the Share Unit Plan.
●
The Board has the power,
subject to regulatory approval where required, to make a limited
number of changes to the Share Unit Plan, including amendments of a
house keeping nature, changes to the vesting or settlement
provisions of an Share Unit, a change to the termination provisions
of a Share Unit or the Share Unit Plan, any amendment respecting
the administration of the Share Unit Plan, and any amendments to
reflect changes to applicable securities or tax laws or that are
otherwise necessary to comply with applicable law or the
requirements of the applicable stock exchanges or other regulatory
body having authority over the Company, the Share Unit Plan, the
participants, or the Shareholders.
●
In the event of a Takeover
Bid, if a bona fide Offer for Shares is made, the Board will have
the sole discretion to amend, abridge or otherwise eliminate any
vesting schedule related to each participant’s Share Units so
that notwithstanding the other terms of this Plan, the underlying
Shares may be conditionally issued to each participant holding
Share Units so (and only so) as to permit the participant to tender
the Shares pursuant to the Offer.
●
In the event of a Change of
Control, the Committee has the right to provide for the conversion
or exchange of any outstanding Share Units into or for units,
rights or other securities in any entity participating in or
resulting from a Change of Control, provided that the value of
previously granted Share Units and the rights of participants are
not materially adversely affected by any such changes. If the
successor entity does not assume or provide valuable substitute
security for the outstanding Share Units, (a) the Plan will be
terminated effective immediately prior to the Change of Control,
(b) all RSUs will vest and a specified number of outstanding PSUs
will vest, as determined in the Board’s discretion using an
Adjustment Factor (in accordance with the Share Unit Plan), and (c)
the Share Units will automatically convert into the entitlement to
receive a cash payment, to be paid by the Company in the same
manner and timing as the underlying Share Unit would have been in
accordance with the Plan, provided however, that such cash payment
will not be paid later than December 31 of the third calendar year
following the year in which the services giving rise to the award
were rendered.
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●
If a dividend becomes payable
by the Company on its Shares, at the Board’s discretion
participants may be entitled to be credited with dividend
equivalent payments in the form of additional RSUs and/or PSUs, as
applicable, which additional units will be settled at the same time
that the underlying RSUs and/or PSUs, as applicable, are
settled.
●
Pursuant to the Share Unit
Plan and the applicable policies and procedures of the Company, any
Share Unit Awards granted to the CEO and CFO are conditional upon a
claw back agreement, whereby each of them personally agrees to
forfeit or reimburse any portion of their bonus payment, including
PSUs, RSUs or Shares issued thereunder, which were awarded for
achievements that are found to involve their fraud, theft or other
illegal conduct.
The
Compensation Committee administers grants under the Share Unit
Plan, and subject to the terms of the Share Unit Plan, certain
Grant Letters may alter the terms of the Share Unit Plan as it
applies to any particular participant’s grant of Share Units.
In addition, in certain cases, individual employment agreements may
vary the rights of participants. All grants are subject to the
approval of the Board, unless the Board delegates such approval to
the Committee.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
No informed
person, including any director, proposed director or executive
officer of the Company, had any material interest, direct or
indirect, in any transaction since the commencement of the
Company's most recently completed financial year or in any proposed
transaction which has materially affected or would materially
affect the Company or any of its subsidiaries.
ADDITIONAL INFORMATION
Additional
information relating to the Company is available on Denison’s
website at
www.denisonmines.com
, on SEDAR
under the Company’s profile at
www.sedar.com
and on EDGAR at
www.sec.gov/edgar.shtml
.
Financial information related to the Company is contained in the
Company’s financial statements and related management’s
discussion and analysis for its most recently completed financial
year.
You may request a
printed copy of the following documents free of charge by writing
to the Corporate Secretary of the Company at 1100 - 40 University
Avenue, Toronto, Ontario M5J 1T1:
●
The Company’s 2018
Annual Report, containing the Company’s consolidated
financial statements and related MD&A for its year ended
December 31, 2018;
●
Any subsequently filed
quarterly report; or
●
The Company’s most
recent Annual Information Form or Annual Report on Form
40-F.
APPROVAL
The contents and
the sending of this Circular to Shareholders, the directors and the
auditor of the Company have been approved by the
Board.
By Order of the
Board of Directors,
Catherine
Stefan
Chair of the
Board
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APPENDIX A
MANDATE OF THE BOARD, POSITION DESCRIPTIONS
AND LIMITS TO MANAGEMENT’S RESPONSIBILITIES
The Board of
Directors of Denison Mines Corp. has adopted this written mandate
and position descriptions for the Board, the Chair of the Board,
the Chair of each Committee of the Board and the Chief Executive
Officer (“CEO”), including the definition of the limits
to management’s responsibilities.
On at least an
annual basis, the Corporate Governance and Nominating Committee
shall review and assess the adequacy of this mandate and make a
recommendation to the Board regarding updating or amending the
same.
1.
MANDATE AND POSITION
DESCRIPTION FOR THE BOARD
(a)
The Board has adopted the
following mandate in which it explicitly acknowledges
responsibility for the stewardship of the Company and, as part of
the overall stewardship responsibility, responsibility for the
following matters:
(i)
to the extent feasible,
satisfying itself as to the integrity of the CEO and other
executive officers and that
the CEO and other
executive officers create a culture of integrity throughout the
organization;
(ii)
the strategic planning
process and approving, on at least an annual basis, a strategic
plan which takes into account, among other things, the
opportunities and risks of the business;
(iii) the
identification of the principal risks of the Company’s
business and ensuring the implementation of appropriate systems to
manage these risks;
(iv)
succession planning,
including appointing, training and monitoring of senior
management;
(v)
the Company’s
communications policy; and
(vi)
the Company’s internal
control and management information systems.
(b)
The Board takes its
responsibilities very seriously and expects that all directors will
participate in Board and Committee meetings on a regular basis, to
the extent reasonably practicable, and will review all meeting
materials in advance of each meeting. Attendance of directors shall
be taken at each Board meeting by the Corporate Secretary or
Assistant Corporate Secretary.
(c)
At all times, a majority of
the Board will satisfy the independence requirements set out by the
Canadian Securities Administrators in National Policy 58-201 and
any other applicable laws and regulations as the same may be
amended from time to time. The independent directors shall meet at
least once per year to discuss the Company’s
matters.
(d)
The Company, together with
its subsidiaries, is committed to conducting its business in
compliance with the law and the highest ethical standards, and to
the highest standards of openness, honesty and accountability that
its various stakeholders are entitled to expect. The Audit
Committee of the Board has established a Policy and Procedures for
the Receipt, Retention and Treatment of Complaints Regarding
Accounting or Auditing Matters, and the Company has established a
Code of Ethics for Directors, Officers and Employees, which
establishes procedures for directors, officers and employees to
report any concerns or questions they may have about violations of
the Code or any laws, rules or regulations. In addition, the Board
will consider adopting other measures for receiving feedback from
stakeholders if at any time the Board or its independent directors
consider the foregoing to be inadequate.
(e)
All new directors will
receive a comprehensive orientation. This orientation may vary from
director to director, depending on his or her expertise and past
experience, but in each case will be sufficient to ensure that each
director fully understands the role of the Board and its
committees, the contribution individual directors are expected to
make (including the commitment of time and resources that is
expected) and an understanding of the nature and operation of the
Company’s business.
(f)
The Board will provide
continuing education opportunities for all directors, where
required, so that individual directors may maintain or enhance
their skills and abilities as directors, as well as to ensure that
their knowledge and understanding of the Company’s business
remains current.
(g)
Prior to nominating or
appointing individuals as directors, the Board will consider the
advice and input of the
Corporate
Governance and Nominating Committee on all relevant matters,
including:
(i)
the appropriate size of the
Board, with a view to facilitating effective decision making;
(ii)what competencies and skills the Board, as a whole, should
possess; and
(iii)
what competencies and skills
each existing director possesses.
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2.
POSITION DESCRIPTIONS FOR THE
CHAIR OF THE BOARD, THE LEAD DIRECTOR, THE CHAIR OF BOARD
COMMITTEES AND THE CEO
(a)
Where the Chair of the Board
is not an independent director, in accordance with paragraph 1(c)
of this Mandate and upon recommendation of the Corporate Governance
and Nominating Committee, the Board will appoint from among the
independent directors, a Lead Director to serve as such until the
next meeting of shareholders where directors are elected, unless
otherwise removed by resolution of the Board of
Directors.
(b)
The Chair of the Board, if
independent, or the Lead Director will:
(i)
act as the effective leader
of the Board and ensure that the Board’s agenda will enable
it to successfully carry out its duties;
(ii)
provide leadership for the
Board’s independent directors;
(iii)
organize the Board to
function independently of management, and ensure that the
responsibilities of the Board are well understood by both the Board
and management and that the boundaries between the Board and
management responsibilities are clearly understood and
respected;
(iv)
ensure that the Board has an
opportunity to meet without members of management, regularly, and
without non-independent directors at least once per
year;
(v)
determine, in consultation
with the Board and management, the time and places of the meetings
of the Board;
(vi)
manage the affairs of the
Board, including ensuring that the Board is organized properly,
functions effectively and meets its obligations and
responsibilities and mandates, where appropriate, through its duly
appointed committees, including:
o
ensuring that the Board works
as a cohesive team and providing the leadership essential for this
purpose;
o
ensuring that the resources
available to the Board (in particular timely and relevant
information) are adequate to support its work;
o
ensuring that a process is in
place by which the effectiveness of the Board and its committees is
assessed on a regular basis;
o
ensuring that a process is in
place by which the contribution of individual directors to the
effectiveness of the board and committees is assessed on a regular
basis; and
o
ensuring that, where
functions are delegated to appropriate committees, the functions
are carried out and results are reported to the Board.
(vii)
ensure that the Board has a
succession planning process is in place to appoint the Chief
Executive Officer and other members of management when
necessary;
(viii)
co-ordinate with management
and the Corporate Secretary or Assistant Corporate Secretary to
ensure that matters to be considered by the Board are properly
presented and given the appropriate opportunity for
discussion;
(ix)
preside as chair of each
meeting of the Board;
(x)
communicate with all members
of the Board to co-ordinate their input, ensure their
accountability and provide for the effectiveness of the
Board;
(xi)
in consultation with the CEO,
and as appropriate, be available to, and respond to inquiries from,
internal and external stakeholders; and
(xi)
act as liaison between the
Board and management to ensure that relationships between the Board
and management are conducted in a professional and constructive
manner, which will involve working with the Chief Executive Officer
to ensure that the conduct of Board meetings provides adequate time
for serious discussion of relevant issues and that the Company is
building a healthy governance culture.
The Chair of the
Board or the Lead Director may, as the case may be, delegate or
share, where appropriate, certain of these responsibilities with
any committee of the Board.
(c)
Any special responsibilities
and authorities of the Chair of any committee of the Board will be
set out in the Terms of Reference/Mandate for the Committee. In
general, the Chair of a Committee shall lead and oversee the
Committee to ensure that it fulfills its mandate as set out in the
Committee’s Terms of Reference/Mandate. In particular, the
Chair shall:
(i)
organize the Committee to
function independently of management, unless specifically provided
otherwise in the Committee’s Mandate;
(ii)
ensure that the Committee has
an opportunity to meet without members of management as
necessary;
(iii)
determine, in consultation
with the Committee and management, the time and places of the
meetings of the Committee;
(iv)
manage the affairs of the
Committee, including ensuring that the Committee is organized
properly, functions effectively and meets its obligations and
responsibilities;
(v)
co-ordinate with management
and the Secretary to the Committee to ensure that matters to be
considered by the Committee are properly presented and given the
appropriate opportunity for discussion;
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(vi)
provide advice and counsel to
the CEO and other senior members of management in the areas covered
by the Committee’s mandate;
(vii)
preside as chair of each
meeting of the Committee; and
(viii)
communicate with all members
of the Committee to co-ordinate their input, ensure their
accountability and provide for the effectiveness of the
Committee.
(d)
The CEO, subject to the
authority of the Board, shall have general supervision of the
business and affairs of the Company and such other powers and
duties as the Board may specify, from time to time. These
responsibilities shall include making recommendations to the Board
regarding the implementation, performance and monitoring, as the
case may be, of each of the items referred to in paragraphs 2(b)(i)
to (b)(viii) of this mandate and ensuring that procedures are in
place and followed by the Company so that each of those items and
any other requirement of the Board is implemented, performed and
monitored in a prudent and responsible manner in accordance with
the determinations of the Board. The Board will develop and approve
periodically, as the Board considers necessary, the corporate goals
and objectives that the CEO is responsible for
meeting.
3.
LIMITS ON THE CEO’S
AUTHORITY
(a)
Unless specifically
instructed otherwise by the Board, and except as set out in Section
127(3) of the Ontario
Business
Corporations Act
(the “OBCA”), the CEO of the
Company has the responsibility and authority to transact any
business or approve any matter:
(i)
in the ordinary course of
business of the Company; and
(ii)
that is not in the ordinary
course of business of the Company, but that is not likely to result
in a material change, within the meaning of the Ontario
Securities Act
, with
respect to the Company; and
(b)
In addition to those matters
referred to in Section 127(3) of the OBCA, Board approval is
required with respect to any business or matter that is not in the
ordinary course of business of the Company and that is likely to
result in a material change, within the meaning of the Ontario
Securities Act
, with
respect to the Company.
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|
Denison Mines Corp.
1100 - 40 University Avenue
Toronto, ON M5J 1T1
T
416 979 1991 F 416 979 5893
www.denisonmines.com
TSX: DML
NYSE American: DNN
|
ANNUAL
REPORT
FOR THE YEAR ENDED DECEMBER 31,
2018
TABLE OF CONTENTS
|
LETTER TO THE
SHAREHOLDERS
|
2
|
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS
|
3
|
|
PERFORMANCE
HIGHLIGHTS
|
3
|
|
ABOUT
DENISON
|
4
|
|
URANIUM
INDUSTRY
OVERVIEW
|
5
|
|
RESULTS OF CONTINUING
OPERATIONS
|
9
|
|
DISCONTINUED
OPERATIONS
|
25
|
|
OUTLOOK FOR
2019
|
30
|
|
ADDITIONAL
INFORMATION
|
32
|
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
|
44
|
|
RESPONSIBILITY
FOR FINANCIAL
STATEMENTS
|
47
|
|
INDEPENDENT
AUDITORS
REPORT
|
48
|
|
ANNUAL
CONSOLIDATED FINANCIAL
STATEMENTS
|
50
|
|
|
LETTER TO THE
SHAREHOLDERS
|
March 19,
2019
Dear
Shareholders,
While we have
seen some volatility in the uranium price over the past several
years, the increase in price from April 2018
(US$20.50/lbU
3
O
8
) to the end of 2018 (US$28.50/lb
U
3
O
8
) has been relatively stable and
sustained – supported by a number of events that have
resulted in rationalization on the supply side. Most significant of
these events was Cameco’s announcement that the temporary
shutdown of the McArthur River mine would become indefinite (with
the timing of a restart depending on future contracting and market
conditions) and that existing customer obligations would be met by
purchasing large volumes of uranium in the spot
market.
Despite an
improving picture of the market’s supply and demand
fundamentals, considerable uncertainty has weighed on the market
during 2018 as a result of a trade petition filed in the United
States under Section 232 – requesting an investigation into
whether uranium imports into the country are harmful to its
national security. With a decision on a potential remedy expected
as early as the second quarter of 2019, many U.S. and global
utilities have deferred plans to re-enter the market until the
impact of the petition is better understood. This has reduced the
number of active market participants and arguably deferred the
process of true price-discovery in a post McArthur River market.
The resolution and market response to the Section 232 process is
likely to be the most influential market development during 2019,
regardless of the outcome, primarily due to the removal of this
uncertainty throughout the global nuclear fuel market.
While the market
has shownsigns of a proper “reset” of long-term
fundamentals through early 2019, the previous twelve months have
been truly 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 is the
first formal study to pair the world’s lowest cost mining
method for uranium, in-situ recovery, with the jurisdiction hosting
the world’s highest-grade uranium deposits, the Athabasca
Basin. Applying the ISR mining method to Wheeler River’s
Phoenix deposit has dramatically changed the potential economics
for the project with a significant reduction in initial capital
costs and an approximately 175% increase in the project’s
pre-tax NPV.
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. With
unanimous approval from the Company’s Board of Directors, we
have initiated the Environmental Assessment and Feasibility Study
processes in 2019. Going forward, we have the flexibility to
advance the project without needing to builda book of long-term
uranium contracts until we consider price conditions attractive
enough to do so, thereby allowing us to optimize our exposure to
rising prices.
The ability to
move a large-scale uranium project forward under these conditions
is quite unique in our current market, and positions our Company to
offer shareholders superior leverage to a sustained market recovery
in the coming years.
As always,
on behalf of the management team and Board of Directors, thank you
for your continued support and interest in Denison.
Best
Regards,
Original signed
by
“David D.
Cates”
David Cates
President & CEO
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
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’).
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.
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
■
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.
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’.
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
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
’).
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.
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
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.
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.
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
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.
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)
|
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
|
(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.
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.
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
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.
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.
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
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.
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.
|
|
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
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.
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MANAGEMENT’S
DISCUSSION & ANALYSIS
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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 7, 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"
|
"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:
|
|
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.
Corporate
Information
BOARD OF
DIRECTORS
Catherine J.G. Stefan
Chair of the
Board
Ontario,
Canada
David D. Cates
Ontario,
Canada
W.
Robert Dengler
Ontario,
Canada
Brian D. Edgar
British Columbia,
Canada
Ron F. Hochstein
British Columbia,
Canada
Jack O.A. Lundin
British Columbia,
Canada
William A. Rand
British Columbia,
Canada
Geun Park
Gyeonggi-do,
Korea
Patricia M. Volker
Ontario,
Canada
OFFICERS
David D. Cates
President
and
Chief Executive
Officer
Mac McDonald
Vice President, Finance
and
Chief Financial
Officer
Tim Gabruch
Vice President,
Commercial
Peter Longo
Vice President, Project
Development
Michael J. Schoonderwoerd
Vice President,
Controller
Dale Verran
Vice President,
Exploration
Amanda Willett
Corporate
Counsel and
Corporate
Secretary
|
OFFICES
Head
Office
Denison Mines
Corp.
1100 – 40 University
Ave
Toronto, Ontario M5J 1T1
Telephone: 416-979-1991
Facsimile: 416-979-5893
www.denisonmines.com
Denison Mines
Corp.
885 West Georgia Street, Suite
2000
Vancouver, British Columbia V6C
3E8
Telephone: 604-689-7842
Toll Free: 1-888-689-7842
Facsimile: 604-689-4250
Denison Mines
Corp.
230 – 22nd Street East, Suite
200
Saskatoon, Saskatchewan S7K
0E9
Telephone: 306-652-8200
Facsimile: 306-652-8202
Denison Environmental
Services
1 Horne Walk, Suite
200
Elliot Lake,
Ontario P5A 2A5
Telephone:
705-848-9191
Facsimile:
705-848-5814
www.denisonenvironmental.com
|
STOCK EXCHANGE
LISTINGS
The Toronto Stock Exchange
(TSX)
Trading Symbol: DML
NYSE American
Trading Symbol: DNN
SHARE REGISTRAR
AND
TRANSFER
AGENT
Computershare Investor Services
Inc.
100 University Avenue, 8th
Floor
Toronto, Ontario M5J 2Y1
Telephone: 1-800-564-6253
AUDITOR
PricewaterhouseCoopers LLP
PwC Tower
18
York Street, Suite 2600
Toronto, Ontario M5J 0B2
Telephone: 416-863-1133
ADDITIONAL
INFORMATION
Further information about
Denison
is
available by contacting Investor
Relations at the head office
listed
above or by email to:
info@denisonmines.com
|
