|
|
|
Figure 99.1
|
|
|
|
|
|
INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
|
CONDENSED
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited -
Expressed in thousands of Canadian dollars (“CAD”)
except for share amounts)
|
|
|
|
|
|
|
|
|
At September
30
2019
|
|
At December
31
2018
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash
equivalents (note 5)
|
|
|
$
|
10,432
|
$
|
23,207
|
Trade and other
receivables (note 6)
|
|
|
|
3,725
|
|
4,072
|
Inventories (note
7)
|
|
|
|
3,620
|
|
3,584
|
Prepaid expenses
and other
|
|
|
|
567
|
|
843
|
|
|
|
|
18,344
|
|
31,706
|
Non-Current
|
|
|
|
|
|
|
Inventories-ore
in stockpiles (note 7)
|
|
|
|
2,098
|
|
2,098
|
Investments (note
8)
|
|
|
|
1,454
|
|
2,255
|
Investments in
associates (note 9)
|
|
|
|
5,156
|
|
5,582
|
Restricted cash
and investments (note 10)
|
|
|
|
12,177
|
|
12,255
|
Property, plant
and equipment (note 11)
|
|
|
|
257,246
|
|
258,291
|
Total
assets
|
|
|
$
|
296,475
|
$
|
312,187
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
|
$
|
7,897
|
$
|
5,554
|
Current portion
of long-term liabilities:
|
|
|
|
|
|
|
Deferred revenue
(note 12)
|
|
|
|
4,580
|
|
4,567
|
Post-employment
benefits (note 13)
|
|
|
|
150
|
|
150
|
Reclamation
obligations (note 14)
|
|
|
|
833
|
|
877
|
Other liabilities
(note 15)
|
|
|
|
290
|
|
1,337
|
|
|
|
|
13,750
|
|
12,485
|
Non-Current
|
|
|
|
|
|
|
Deferred revenue
(note 12)
|
|
|
|
32,306
|
|
33,160
|
Post-employment
benefits (note 13)
|
|
|
|
2,105
|
|
2,145
|
Reclamation
obligations (note 14)
|
|
|
|
29,621
|
|
29,187
|
Other liabilities
(note 15)
|
|
|
|
584
|
|
-
|
Deferred income
tax liability
|
|
|
|
10,324
|
|
12,963
|
Total
liabilities
|
|
|
|
88,690
|
|
89,940
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
Share capital
(note 16)
|
|
|
|
1,332,058
|
|
1,331,214
|
Share purchase
warrants (note 17)
|
|
|
|
435
|
|
435
|
Contributed
surplus (note 18)
|
|
|
|
64,967
|
|
63,634
|
Deficit
|
|
|
|
(1,190,806)
|
|
(1,174,163)
|
Accumulated other
comprehensive income (note 19)
|
|
|
|
1,131
|
|
1,127
|
Total
equity
|
|
|
|
207,785
|
|
222,247
|
Total
liabilities and equity
|
|
|
$
|
296,475
|
$
|
312,187
|
|
|
|
|
|
|
|
Issued and
outstanding common shares (note 16)
|
|
|
590,225,391
|
|
589,175,086
|
Nature of
Operations and Going Concern (note 1)
Contingencies
(note 25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are integral to the condensed interim consolidated financial
statements
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
|
(Unaudited -
Expressed in thousands of CAD dollars except for share and per
share amounts)
|
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES (note 21)
|
$
|
3,478
|
$
|
3,729
|
$
|
11,593
|
$
|
11,406
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Operating
expenses (note 20, 21)
|
|
(2,877)
|
|
(4,231)
|
|
(9,738)
|
|
(11,739)
|
Exploration and
evaluation (note 21)
|
|
(4,591)
|
|
(3,894)
|
|
(11,846)
|
|
(14,018)
|
General and
administrative (note 21)
|
|
(1,657)
|
|
(1,657)
|
|
(5,688)
|
|
(5,378)
|
Impairment
reversal (note 21)
|
|
-
|
|
-
|
|
-
|
|
11
|
Other income
(expense) (note 20)
|
|
(928)
|
|
664
|
|
(1,456)
|
|
(2,654)
|
|
|
(10,053)
|
|
(9,118)
|
|
(28,728)
|
|
(33,778)
|
Loss
before finance charges, equity accounting
|
|
(6,575)
|
|
(5,389)
|
|
(17,135)
|
|
(22,372)
|
Finance
expense-net (note 20)
|
|
(1,037)
|
|
(981)
|
|
(3,058)
|
|
(2,670)
|
Equity share of
income (loss) of associate (note 9)
|
|
(220)
|
|
639
|
|
(426)
|
|
429
|
Loss before
taxes
|
|
(7,832)
|
|
(5,731)
|
|
(20,619)
|
|
(24,613)
|
Income tax
recovery (note 23)
|
|
|
|
|
|
|
|
|
Deferred
|
|
1,408
|
|
1,847
|
|
3,976
|
|
8,178
|
Net loss for the
period
|
$
|
(6,424)
|
$
|
(3,884)
|
$
|
(16,643)
|
$
|
(16,435)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss) (note 19):
|
|
|
|
|
|
|
|
|
Items that may be
reclassified to income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency
translation change
|
|
(2)
|
|
2
|
|
4
|
|
(5)
|
Comprehensive
loss for the period
|
$
|
(6,426)
|
$
|
(3,882)
|
$
|
(16,639)
|
$
|
(16,440)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per share:
|
|
|
|
|
|
|
|
|
All
operations
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
(0.03)
|
$
|
(0.03)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding (in thousands):
|
|
|
|
|
Basic and
diluted
|
|
590,221
|
|
559,183
|
|
589,608
|
|
559,183
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are integral to the condensed interim consolidated financial
statements
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
|
(Unaudited -
Expressed in thousands of CAD dollars)
|
|
|
|
|
Nine
Months Ended
September
30
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
$
|
1,331,214
|
$
|
1,310,473
|
Stock options
exercised-cash
|
|
|
|
|
|
405
|
|
-
|
Stock options
exercised-non cash (note 16)
|
|
|
|
|
|
140
|
|
-
|
Share units
exercised-non cash (note 16)
|
|
|
|
|
|
299
|
|
-
|
Balance-end of
period
|
|
|
|
|
|
1,332,058
|
|
1,310,473
|
|
|
|
|
|
|
|
|
|
Share purchase warrants
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
435
|
|
435
|
Balance-end of
period
|
|
|
|
|
|
435
|
|
435
|
|
|
|
|
|
|
|
|
|
Contributed surplus
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
63,634
|
|
61,799
|
Share-based
compensation expense (note 18)
|
|
|
|
|
|
1,772
|
|
1,338
|
Stock options
exercised-non cash (note 16)
|
|
|
|
|
|
(140)
|
|
-
|
Share units
exercised-non cash (note 16)
|
|
|
|
|
|
(299)
|
|
-
|
Balance-end of
period
|
|
|
|
|
|
64,967
|
|
63,137
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
(1,174,163)
|
|
(1,144,086)
|
Net
loss
|
|
|
|
|
|
(16,643)
|
|
(16,435)
|
Balance-end of
period
|
|
|
|
|
|
(1,190,806)
|
|
(1,160,521)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
1,127
|
|
1,140
|
Foreign currency
translation
|
|
|
|
|
|
4
|
|
(5)
|
Balance-end of
period
|
|
|
|
|
|
1,131
|
|
1,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
|
222,247
|
|
229,761
|
Balance-end of
period
|
|
|
|
|
$
|
207,785
|
$
|
214,659
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are integral to the condensed interim consolidated financial
statements
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
|
(Unaudited -
Expressed in thousands of CAD dollars)
|
|
|
|
|
Nine
Months Ended
September
30
|
CASH PROVIDED BY (USED IN):
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss for the
period
|
|
|
|
|
$
|
(16,643)
|
$
|
(16,435)
|
Items not
affecting cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Depletion,
depreciation, amortization and accretion
|
|
|
|
|
|
6,400
|
|
6,393
|
Impairment
reversal
|
|
|
|
|
|
-
|
|
(11)
|
Share-based
compensation (note 18)
|
|
|
|
|
|
1,772
|
|
1,338
|
Recognition
of deferred revenue (note 12)
|
|
|
|
|
|
(3,243)
|
|
(3,000)
|
Gains on
property, plant and equipment disposals (note 20)
|
|
|
|
(5)
|
|
(117)
|
Losses on
investments (note 8)
|
|
|
|
1,172
|
|
2,521
|
Equity loss
of associate (note 9)
|
|
|
|
678
|
|
247
|
Dilution gain
of associate (note 9)
|
|
|
|
(252)
|
|
(676)
|
Deferred income
tax recovery (note 23)
|
|
|
|
|
|
(3,976)
|
|
(8,178)
|
Foreign exchange
losses (gains)
|
|
|
|
|
|
(1)
|
|
-
|
Post-employment
benefits (note 13)
|
|
|
|
|
|
(93)
|
|
(115)
|
Reclamation
obligations (note 14)
|
|
|
|
|
|
(630)
|
|
(573)
|
Change in
non-cash working capital items (note 20)
|
|
|
|
|
|
2,666
|
|
(142)
|
Net
cash used in operating activities
|
|
|
|
|
|
(12,155)
|
|
(18,748)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Decrease in loans
receivable (note 6)
|
|
|
|
|
|
250
|
|
-
|
Sale of
investments (note 8)
|
|
|
|
|
|
-
|
|
37,500
|
Purchase of
investments (note 8)
|
|
|
|
|
|
(371)
|
|
-
|
Expenditures on
property, plant and equipment (note 11)
|
|
|
|
(821)
|
|
(1,060)
|
Proceeds
on sale of property, plant and equipment
|
|
|
|
|
|
5
|
|
347
|
Increase
(decrease) in restricted cash and investments
|
|
|
|
78
|
|
(205)
|
Net
cash provided by (used in) investing activities
|
|
|
|
|
|
(859)
|
|
36,582
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of debt
obligations (note 15)
|
|
|
|
|
|
43
|
|
-
|
Payment
of debt obligations (note 15)
|
|
|
|
|
|
(209)
|
|
-
|
Stock
option exercise proceeds (note 16)
|
|
|
|
|
|
405
|
|
-
|
Net
cash provided by financing activities
|
|
|
|
|
|
239
|
|
-
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
|
|
|
(12,775)
|
|
17,834
|
Cash
and cash equivalents, beginning of period
|
|
|
|
|
|
23,207
|
|
3,636
|
Cash
and cash equivalents, end of period
|
|
|
|
|
$
|
10,432
|
$
|
21,470
|
|
The accompanying
notes are integral to the condensed interim consolidated financial
statements
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
|
|
(Unaudited -
Expressed in CAD dollars except for shares and per share
amounts)
|
|
1.
NATURE OF
OPERATIONS AND GOING CONCERN
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 bearing properties, extraction, processing
and selling of uranium.
The Company has a
90.00% interest in the Wheeler River Joint Venture
(“WRJV”), a 66.51% interest in the Waterbury Lake
Limited Partnership (“WLULP”), a 22.50% 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
12). 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 other 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 (“U3O8”) and
uranium hexafluoride (“UF6”). The
Company has no ownership interest in UPC but receives fees for
management services and commissions from the purchase and sale of
U3O8 and
UF6 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.
Going
Concern
These condensed
interim consolidated financial statements have been prepared using
International Financial Reporting Standards (“IFRS”),
as issued by the International Accounting Standards Board
(“IASB”), on a going concern basis, which assumes that
the Company will be able to meet its obligations and continue its
operations for the next twelve months.
At September 30,
2019, the Company does not have sufficient liquidity on hand to
fund its planned operations for the next 12 months. In order to
both fund operations and maintain rights under existing agreements,
the Company must secure sufficient future funding. The
Company is actively pursuing access to different sources of funding
and while it has been successful in the past in obtaining financing
for its activities, there is no assurance that it will be able to
obtain adequate financing in the future. These events and
conditions indicate the existence of material uncertainties that
may cast significant doubt as to the Company’s ability to
continue as a going concern.
These financial
statements do not reflect the adjustments to the carrying values of
assets and liabilities and the reported expenses and balance sheet
classifications that would be necessary if the Company ceases to
exist as a going concern in the normal course of operations. Such
adjustments could be material.
2.
STATEMENT
OF COMPLIANCE
These condensed
interim consolidated financial statements have been prepared in
accordance with IFRS as issued by the IASB applicable to the
preparation of interim financial statements, including IAS 34,
Interim Financial Reporting. The condensed interim consolidated
financial statements should be read in conjunction with the audited
annual consolidated financial statements for the year ended
December 31, 2018. The Company’s presentation currency is
Canadian dollars.
These financial
statements were approved by the board of directors for issue on
November 7, 2019.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
3.
ACCOUNTING
POLICIES AND ACCOUNTING CHANGES
Significant
Accounting Policies and Accounting Changes in Fiscal
2019
The significant
accounting policies followed in these condensed interim
consolidated financial statements are consistent with those applied
in the Company’s audited annual consolidated financial
statements for the year ended December 31, 2018, with the exception
of the Company’s accounting for leases.
On January 1,
2019, Denison adopted the provisions of IFRS 16 Leases (“IFRS
16”) using the modified retrospective approach. As such,
comparative information has not been restated and continues to be
reported under International Accounting Standard 17 Leases
(“IAS 17”) and International Financial Reporting
Interpretation Committee 4 Determining Whether an Arrangement
Contains a Lease (“IFRIC 4”). The transitional impact
of the change in accounting policy is disclosed in note 4 and
additional disclosures related to Denison’s IFRS 16
right-of-use assets and lease liabilities are disclosed in notes 11
and 15, respectively. Denison’s new accounting policy for
leases is as follows:
At the inception
of a contract, the Company assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease, if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an
identified asset, the Company assesses whether:
●
the contract involves the use
of an identified asset – this may be specified explicitly or
implicitly and should be physically distinct or represent
substantially all of the capacity of a physically distinct asset.
If the supplier has a substantive substitution right, then the
asset is not identified;
●
the Company has the right to
obtain substantially all of the economic benefits from the use of
the asset throughout the period of use; and
●
the Company has the right to
direct the use of the asset. The Company has this right when it has
the decision-making rights that are most relevant to changing how
and for what purpose the asset is used. In rare cases where the
decision about how and for what purpose the asset is used is
predetermined, the Company has the right to direct the use of the
asset if either: (a) the Company has the right to operate the
asset; or (b) the Company designed the asset in a way that
predetermines how and for what purpose it will be
used.
If the contract
contains a lease, a right-of-use asset and a corresponding lease
liability are set-up at the date at which the leased asset is
available for use by the Company. The lease payments are discounted
using either the interest rate implicit in the lease, if available,
or the Company’s incremental borrowing rate. Each lease
payment is allocated between the liability and the finance cost
(i.e. accretion) so as to produce a constant rate of interest on
the remaining lease liability balance. The Company accounts for the
lease and non-lease components separately. The right-of-use asset
is depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis.
4.
ADOPTION
OF NEW ACCOUNTING STANDARDS – IMPACT ON FINANCIAL
STATEMENTS
As noted above,
Denison adopted the provisions of IFRS 16 on January 1, 2019 using
the modified retrospective approach. On transition to IFRS 16, the
Company recognized an additional $944,000 of right-of-use assets
(reported within “Property, Plant and Equipment”
– see note 11) and an additional $944,000 of lease
liabilities (reported within “Other Liabilities”
– see note 15).
The underlying
lease payments have been discounted using the Company’s
incremental borrowing rate on January 1, 2019 of 8.50%. In applying
IFRS 16 for the first time, Denison has used the following
practical expedients permitted by the standard: a) leases with a
term of less than 12 months remaining at January 1, 2019 have been
accounted for as short-term leases; and b) initial direct costs for
the measurement of the right-of-use asset at the date of initial
application have been excluded.
A reconciliation
of Denison’s December 31, 2018 lease commitments to its
opening lease liabilities amount recognized under IFRS 16 is as
follows:
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
(in thousands of
CAD dollars)
|
|
|
|
|
|
|
|
Operating lease
and other commitments per Denison’s December 31, 2018 annual
financial statements
|
|
$
|
1,259
|
Adjustments to
IFRS 16:
|
|
|
|
Recognition
exemption for short-term leases
|
|
|
(13)
|
Other
|
|
|
(75)
|
Lease liabilities
- undiscounted
|
|
|
1,171
|
Present value
discount adjustment
|
|
|
(227)
|
Lease liabilities
on transition to IFRS 16 at January 1, 2019
|
|
$
|
944
|
5.
CASH AND
CASH EQUIVALENTS
The cash and cash
equivalent balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
1,887
|
$
|
1,152
|
Cash in MLJV and
MWJV
|
|
|
|
1,596
|
|
654
|
Cash
equivalents
|
|
|
|
6,949
|
|
21,401
|
|
|
|
$
|
10,432
|
$
|
23,207
|
6.
TRADE AND
OTHER RECEIVABLES
The trade and
other receivables balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
$
|
3,055
|
$
|
2,952
|
Receivables in
MLJV and MWJV
|
|
|
|
409
|
|
571
|
Sales tax
receivables
|
|
|
|
121
|
|
98
|
Sundry
receivables
|
|
|
|
140
|
|
201
|
Loan receivable
(note 22)
|
|
|
|
-
|
|
250
|
|
|
|
$
|
3,725
|
$
|
4,072
|
The inventories
balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Uranium
concentrates
|
|
|
$
|
526
|
$
|
526
|
Inventory of ore
in stockpiles
|
|
|
|
2,098
|
|
2,098
|
Mine and mill
supplies in MLJV
|
|
|
|
3,094
|
|
3,058
|
|
|
|
$
|
5,718
|
$
|
5,682
|
|
|
|
|
|
|
|
Inventories-by
balance sheet presentation:
|
|
|
|
|
|
|
Current
|
|
|
$
|
3,620
|
$
|
3,584
|
Long-term-ore in
stockpiles
|
|
|
|
2,098
|
|
2,098
|
|
|
|
$
|
5,718
|
$
|
5,682
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
The investments
balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
Equity
instruments
|
|
|
$
|
1,454
|
$
|
2,255
|
|
|
|
$
|
1,454
|
$
|
2,255
|
|
|
|
|
|
|
|
Investments-by
balance sheet presentation:
|
|
|
|
|
|
|
Current
|
|
|
$
|
-
|
$
|
-
|
Long-term
|
|
|
|
1,454
|
|
2,255
|
|
|
|
$
|
1,454
|
$
|
2,255
|
The investments
continuity summary is as follows:
(in thousands of
CAD dollars)
|
|
|
|
|
|
Nine
Months
Ended
September
30,
2019
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
$
|
2,255
|
Purchases
|
|
|
|
|
|
|
Equity
instruments
|
|
|
|
|
|
371
|
Fair value loss
to profit and loss
|
|
|
|
|
|
(1,172)
|
Balance-end of
period
|
|
|
|
|
$
|
1,454
|
9.
INVESTMENT
IN ASSOCIATES
The investment in
associates balance consists of the Company’s investment in
GoviEx Uranium Inc (“GoviEx”). A summary of the
investment in GoviEx is as follows:
(in thousands of
CAD dollars except share amounts)
|
|
|
|
Number
of Common Shares
|
|
|
|
|
|
|
|
|
|
Balance-December
31, 2018
|
|
|
|
65,144,021
|
$
|
5,582
|
Equity share of
net income (loss)
|
|
|
|
-
|
|
(678)
|
Dilution gain
(loss)
|
|
|
|
-
|
|
252
|
Balance-September
30, 2019
|
|
|
|
65,144,021
|
$
|
5,156
|
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 September 30, 2019, Denison holds an
approximate 15.39% interest in GoviEx based on publicly available
information (December 31, 2018: 16.21%) 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 September 30, 2019 was $0.16 per share which
corresponds to a quoted market value of $10,423,000 (December 31,
2018: $9,772,000) 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
material publicly disclosed share issuance transactions that have
occurred up to the quarter end date on which Denison is reporting.
A reconciliation of GoviEx’s summarized information to
Denison’s investment carrying value is also
included.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
USD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
$
|
4,559
|
$
|
4,800
|
Total non-current
assets
|
|
|
|
32,418
|
|
32,432
|
Total current
liabilities
|
|
|
|
(8,222)
|
|
(8,315)
|
Total net
assets
|
|
|
$
|
28,755
|
$
|
28,917
|
|
|
|
|
|
|
|
|
|
|
|
9 Months
Ended
|
|
12 Months
Ended
|
|
|
|
|
September
30
|
|
December
31
|
(in thousands of
USD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
-
|
$
|
-
|
Net
loss
|
|
|
|
(3,202)
|
|
(1,892)
|
Comprehensive
loss
|
|
|
$
|
(3,202)
|
$
|
(1,892)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
Reconciliation of
GoviEx net assets to Denison investment carrying
value:
|
|
|
Net assets of
GoviEx-beginning of period-USD
|
|
|
$
|
28,917
|
$
|
23,604
|
Share capital
change
|
|
|
|
2,474
|
|
6,654
|
Contributed
surplus change
|
|
|
|
86
|
|
74
|
Share-based
payment reserve change
|
|
|
|
480
|
|
477
|
Net
loss
|
|
|
|
(3,202)
|
|
(1,892)
|
Net assets of
GoviEx–end of period-USD
|
|
|
$
|
28,755
|
$
|
28,917
|
Denison ownership
interest
|
|
|
|
15.39%
|
|
16.21%
|
Denison share of
net assets of GoviEx
|
|
|
|
4,425
|
|
4,687
|
Other
adjustments
|
|
|
|
(343)
|
|
(283)
|
Investment in
GoviEx–USD
|
|
|
|
4,082
|
|
4,404
|
At historical
exchange rate
|
|
|
|
1.2631
|
|
1.2675
|
Investment in
GoviEx–CAD
|
|
|
$
|
5,156
|
$
|
5,582
|
10.
RESTRICTED
CASH AND INVESTMENTS
The restricted
cash and investments balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
3,042
|
$
|
85
|
Investments
|
|
|
|
9,135
|
|
12,170
|
|
|
|
$
|
12,177
|
$
|
12,255
|
|
|
|
|
|
|
|
Restricted cash
and investments-by item:
|
|
|
|
|
|
|
Elliot Lake
reclamation trust fund
|
|
|
$
|
3,042
|
$
|
3,120
|
Letters of credit
facility pledged assets
|
|
|
|
9,000
|
|
9,000
|
Letters of credit
additional collateral
|
|
|
|
135
|
|
135
|
|
|
|
$
|
12,177
|
$
|
12,255
|
At September 30,
2019, investments consist of guaranteed investment certificates
with maturities of more than 90 days.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
Elliot
Lake Reclamation Trust Fund
During the nine
months ended September 30, 2019, the Company deposited an
additional $477,000 into the Elliot Lake Reclamation Trust Fund and
withdrew $601,000.
Letters of
Credit Facility Pledged Assets
As at September
30, 2019, 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 and
15).
Letters of
Credit Additional Collateral
As at September
30, 2019, 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 14 and
15).
11.
PROPERTY,
PLANT AND EQUIPMENT
The property,
plant and equipment (“PP&E”) continuity summary is
as follows:
|
|
Plant
and Equipment
|
|
Mineral
|
|
Total
|
(in thousands of
CAD dollars)
|
|
Owned
|
|
Right-of-Use
|
|
Properties
|
|
PP&E
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Balance –
December 31, 2018
|
$
|
103,430
|
$
|
-
|
$
|
178,947
|
$
|
282,377
|
Adoption of IFRS
16 (note 4)
|
|
-
|
|
944
|
|
-
|
|
944
|
Additions
|
|
375
|
|
38
|
|
446
|
|
859
|
Disposals
|
|
(53)
|
|
-
|
|
-
|
|
(53)
|
Balance
– September 30, 2019
|
$
|
103,752
|
$
|
982
|
$
|
179,393
|
$
|
284,127
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization, depreciation:
|
|
|
|
|
|
|
|
|
Balance –
December 31, 2018
|
$
|
(24,086)
|
$
|
-
|
$
|
-
|
$
|
(24,086)
|
Amortization
|
|
(159)
|
|
-
|
|
-
|
|
(159)
|
Depreciation
|
|
(2,512)
|
|
(177)
|
|
-
|
|
(2,689)
|
Disposals
|
|
53
|
|
-
|
|
-
|
|
53
|
Balance
– September 30, 2019
|
$
|
(26,704)
|
$
|
(177)
|
$
|
-
|
$
|
(26,881)
|
|
|
|
|
|
|
|
|
|
Carrying
value:
|
|
|
|
|
|
|
|
|
Balance –
December 31, 2018
|
$
|
79,344
|
$
|
-
|
$
|
178,947
|
$
|
258,291
|
Balance –
September 30, 2019
|
$
|
77,048
|
$
|
805
|
$
|
179,393
|
$
|
257,246
|
Plant and
Equipment – Owned
The Company has a
22.50% interest in the McClean Lake mill through its ownership
interest in the MLJV. The carrying value of the mill, comprised of
various infrastructure, building and machinery assets, represents
$69,001,000, or 89.6%, of the September 2019 total carrying value
amount.
Plant and
Equipment – Right-of-Use
In conjunction
with the adoption of IFRS 16, the Company has included the cost of
various right-of-use (“ROU”) assets within its PP&E
carrying value amount. These assets consist of building, vehicle
and office equipment leases. The majority of the value is
attributable to the building lease assets which represent the
Company’s office and warehousing space located in Toronto,
Saskatoon and Sudbury.
Mineral
Properties
As at September
30, 2019, the Company has various interests in development,
evaluation and exploration projects located in Canada which are
either held directly or through option or various contractual
agreements. The properties with significant carrying values, being
Wheeler River, Waterbury Lake, Midwest, Mann Lake, Wolly, Johnston
Lake and McClean Lake, represent $162,315,000, or 90.5%, of the
September 2019 total mineral property carrying amount. Significant
changes in the period from the December 31, 2018 year-end are
disclosed below.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
Hook
Carter
In November 2016,
Denison completed the purchase of an 80% interest in the
Hook-Carter property from ALX Uranium Corp (“ALX”).
Under terms in the agreement, Denison has agreed to provide ALX
with a carried interest on the first $12,000,000 in expenditures.
As at September 30, 2019, the Company has spent $6,686,000 on the
project, since acquisition. Of this amount, $1,760,000 was spent
during the nine months ended September 30, 2019.
Waterbury
Lake
In May 2019, the
Company increased its interest in the WLULP (and the Waterbury Lake
property) from 65.92% to 66.51% under the terms of the dilution
provisions in the agreements governing the project (see note
22).
12. DEFERRED
REVENUE
The deferred
revenue balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Deferred revenue
– CLJV toll milling – APG
|
|
|
$
|
36,886
|
$
|
37,727
|
|
|
|
$
|
36,886
|
$
|
37,727
|
|
|
|
|
|
|
|
Deferred
revenue-by balance sheet presentation:
|
|
|
|
|
|
|
Current
|
|
|
$
|
4,580
|
$
|
4,567
|
Non-current
|
|
|
|
32,306
|
|
33,160
|
|
|
|
$
|
36,886
|
$
|
37,727
|
The deferred
revenue liability continuity summary is as follows:
(in thousands of
CAD dollars)
|
|
|
|
|
|
Nine
Months
Ended
September
30,
2019
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
$
|
37,727
|
Revenue
recognized during the period
|
|
|
|
|
|
(3,243)
|
Accretion
|
|
|
|
|
|
2,402
|
Balance-end of
period
|
|
|
|
|
$
|
36,886
|
Arrangement
with Anglo Pacific Group (“APG”) PLC
In February 2017,
Denison closed an arrangement with APG under which Denison received
an upfront payment in exchange for its right to receive specified
future toll milling cash receipts from the MLJV under the current
toll milling agreement with the CLJV from July 1, 2016 onwards. 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 specified Cigar
Lake ore through the McClean Lake mill.
In the nine
months ended September 30, 2019, the Company has recognized
$3,243,000 of toll milling revenue from the draw-down of deferred
revenue, based on Cigar Lake toll milling production of 12,645,000
pounds U3O8 (100% basis). The
drawdown for the nine months includes a retroactive $26,000
increase in revenue resulting from changes in estimates to the toll
milling drawdown rate in the first quarter of 2019.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
13. POST-EMPLOYMENT
BENEFITS
The
post-employment benefits balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Accrued benefit
obligation
|
|
|
$
|
2,255
|
$
|
2,295
|
|
|
|
$
|
2,255
|
$
|
2,295
|
|
|
|
|
|
|
|
Post-employment
benefits-by balance sheet presentation:
|
|
|
|
|
Current
|
|
|
$
|
150
|
$
|
150
|
Non-current
|
|
|
|
2,105
|
|
2,145
|
|
|
|
$
|
2,255
|
$
|
2,295
|
The
post-employment benefits continuity summary is as
follows:
(in thousands of
CAD dollars)
|
|
|
|
|
|
Nine
Months
Ended
September
30,
2019
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
$
|
2,295
|
Accretion
|
|
|
|
|
|
53
|
Benefits
paid
|
|
|
|
|
|
(93)
|
Balance-end of
period
|
|
|
|
|
$
|
2,255
|
14. RECLAMATION
OBLIGATIONS
The reclamation
obligations balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Reclamation
obligations-by location:
|
|
|
|
|
|
|
Elliot
Lake
|
|
|
$
|
17,166
|
$
|
17,205
|
McClean and
Midwest Joint Ventures
|
|
|
|
13,266
|
|
12,837
|
Other
|
|
|
|
22
|
|
22
|
|
|
|
$
|
30,454
|
$
|
30,064
|
|
|
|
|
|
|
|
Reclamation
obligations-by balance sheet presentation:
|
|
|
|
|
Current
|
|
|
$
|
833
|
$
|
877
|
Non-current
|
|
|
|
29,621
|
|
29,187
|
|
|
|
$
|
30,454
|
$
|
30,064
|
The reclamation
obligations continuity summary is as follows:
(in thousands of
CAD dollars)
|
|
|
|
|
|
Nine
Months
Ended
September
30,
2019
|
|
|
|
|
|
|
|
Balance-beginning
of period
|
|
|
|
|
$
|
30,064
|
Accretion
|
|
|
|
|
|
1,020
|
Expenditures
incurred
|
|
|
|
|
|
(630)
|
Balance-end of
period
|
|
|
|
|
$
|
30,454
|
Site
Restoration: Elliot Lake
Spending on
restoration activities at the Elliot Lake site is funded from
monies in the Elliot Lake Reclamation Trust fund (see note
10).
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
Site
Restoration: McClean Lake Joint Venture and Midwest Joint
Venture
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 relating to future decommissioning
and reclamation plans that have been filed and approved by the
applicable regulatory authorities. As at September 30, 2019, the
Company has provided irrevocable standby letters of credit, from a
chartered bank, in favour of the Saskatchewan Ministry of
Environment, totalling $24,135,000 which relate to the most
recently filed reclamation plan dated March 2016.
15. OTHER
LIABILITIES
The other
liabilities balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Debt
obligations:
|
|
|
|
|
|
|
Lease
liabilities
|
|
|
$
|
831
|
$
|
-
|
Loan
liabilities
|
|
|
|
43
|
|
-
|
Flow-through
share premium obligation (note 16)
|
|
|
|
-
|
|
1,337
|
|
|
|
$
|
874
|
$
|
1,337
|
|
|
|
|
|
|
|
Other long-term
liabilities-by balance sheet presentation:
|
|
|
|
|
Current
|
|
|
$
|
290
|
$
|
1,337
|
Non-current
|
|
|
|
584
|
|
-
|
|
|
|
$
|
874
|
$
|
1,337
|
Letters of
Credit Facility
In January 2019,
the Company entered into an amending agreement for its letters of
credit facility with BNS (the “2019 facility”). Under
the amendment, the maturity date of the 2019 facility has been
extended to January 31, 2020. All other terms of the 2019 facility
(tangible net worth covenant, pledged cash, investment amounts and
security for the facility) remain unchanged from those of the 2018
facility. The 2019 facility continues to provide the Company with
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) subject to letter of credit and standby fees of 2.40%
(0.40% on the first $9,000,000) and 0.75%
respectively.
At September 30,
2019, the Company is in compliance with its facility covenants and
$24,000,000 (December 31, 2018: $24,000,000) of the facility is
being utilized as collateral for letters of credit issued in
respect of the reclamation obligations for the MLJV and MWJV.
During the nine months ended September 30, 2019, the Company
incurred letter of credit fees of $297,000.
Debt
Obligations
At September 30,
2019, the Company’s debt obligations are comprised of lease
liabilities associated with the new accounting required under IFRS
16 and loan liabilities. The debt obligations continuity summary is
as follows:
|
|
|
Lease
|
|
Loan
|
|
Total
Debt
|
(in thousands of
CAD dollars)
|
|
|
|
Liabilitites
|
|
Liabilities
|
|
Obligations
|
|
|
|
|
|
|
|
|
|
Balance –
December 31, 2018
|
|
|
$
|
-
|
$
|
-
|
$
|
-
|
Adoption of IFRS
16 (note 4)
|
|
|
|
944
|
|
-
|
|
944
|
Accretion
|
|
|
|
58
|
|
-
|
|
58
|
Additions
|
|
|
|
38
|
|
43
|
|
81
|
Repayments
|
|
|
|
(209)
|
|
-
|
|
(209)
|
Balance
– September 30, 2019
|
|
|
$
|
831
|
$
|
43
|
$
|
874
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
Debt
Obligations – Scheduled Maturities
The following
table outlines the Company’s scheduled maturities of its debt
obligations as at September 30, 2019:
|
|
|
Lease
|
|
Loan
|
|
Total
Debt
|
(in thousands of
CAD dollars)
|
|
|
|
Liabilitites
|
|
Liabilities
|
|
Obligations
|
|
|
|
|
|
|
|
|
|
Maturity analysis
– contractual undiscounted cash flows:
|
|
|
|
|
|
|
Next 12
months
|
|
|
$
|
281
|
$
|
9
|
$
|
290
|
One to five
years
|
|
|
|
610
|
|
38
|
|
648
|
More than five
years
|
|
|
|
118
|
|
-
|
|
118
|
Total obligation
– end of period - undiscounted
|
|
|
|
1,009
|
|
47
|
|
1,056
|
Present value
discount adjustment
|
|
|
|
(178)
|
|
(4)
|
|
(182)
|
Total
obligation – end of period - discounted
|
|
|
$
|
831
|
$
|
43
|
$
|
874
|
16. 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 of
CAD dollars except share amounts)
|
Shares
|
|
|
|
|
|
|
Balance-December
31, 2018
|
589,175,086
|
$
|
1,331,214
|
|
|
|
|
Issued for
cash:
|
|
|
|
Stock option
exercises
|
663,150
|
|
405
|
Stock option
exercises-fair value adjustment
|
-
|
|
140
|
Share unit
exercises-fair value adjustment
|
433,333
|
|
299
|
Share
cancellations
|
(46,178)
|
|
-
|
|
1,050,305
|
|
844
|
Balance-September
30, 2019
|
590,225,391
|
$
|
1,332,058
|
Share
Cancellations
In February 2019,
46,178 shares were cancelled in connection with the January 2013
acquisition of JNR Resources Inc (“JNR”). JNR
shareholders were entitled to exchange their JNR shares for shares
of Denison in accordance with the share exchange ratio established
for the acquisition. In January 2019, 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 September
30, 2019, the Company estimates that it has satisfied its
obligation to spend $5,000,000 on eligible exploration expenditures
by the end of fiscal 2019 as a result of the issuance of
flow-through shares in November 2018. The Company renounced the
income tax benefits of this issue in February 2019, with an
effective date of renunciation to its subscribers of December 31,
2018. In conjunction with the renunciation, the flow-through share
premium liability at December 31, 2018 was extinguished and a
deferred tax recovery was recognized in the first quarter of 2019
(see notes 15 and 23).
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
17. 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 of CAD dollars except share amounts)
|
|
Share
(CAD)
|
|
Issuable
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Balance-December
31, 2018 and September 30, 2019
|
$
|
1.27
|
|
1,673,077
|
$
|
435
|
The warrants
noted above were issued in February 2017 and expire on February 14,
2020.
18. SHARE-BASED
COMPENSATION
The
Company’s share based compensation arrangements include stock
options and share units in the form of restricted share units
(“RSUs”) and performance share units
(“PSUs”).
A summary of
share based compensation expense recognized in the statement of
income (loss) is as follows:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Share based
compensation expense for:
|
|
|
|
|
|
|
|
|
Stock
options
|
$
|
(151)
|
$
|
(221)
|
$
|
(640)
|
$
|
(815)
|
RSUs
|
|
(224)
|
|
(103)
|
|
(819)
|
|
(225)
|
PSUs
|
|
(90)
|
|
(149)
|
|
(313)
|
|
(298)
|
Share
based compensation expense
|
$
|
(465)
|
$
|
(473)
|
$
|
(1,772)
|
$
|
(1,338)
|
As at September
30, 2019, an additional $1,916,000 in share-based compensation
expense remains to be recognized up until April 2023.
Stock
Options
A continuity
summary of the stock options granted under the Company’s
stock-based compensation plan is presented below:
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
Number
of
|
|
Price
per
|
|
|
|
|
|
|
|
Common
|
|
Share
|
|
|
|
|
|
|
|
Shares
|
|
(CAD)
|
|
|
|
|
|
|
|
|
|
|
Stock options
outstanding – December 31, 2018
|
|
|
|
13,865,193
|
$
|
0.83
|
Grants
|
|
|
|
|
|
|
2,718,000
|
|
0.68
|
Exercises
(1)
|
|
|
|
|
|
|
(663,150)
|
|
0.61
|
Expiries
|
|
|
|
|
|
|
(866,000)
|
|
1.81
|
Forfeitures
|
|
|
|
|
|
|
(1,234,800)
|
|
0.81
|
Stock options
outstanding – September 30, 2019
|
|
|
|
13,819,243
|
$
|
0.76
|
Stock options
exercisable – September 30, 2019
|
|
|
|
9,901,721
|
$
|
0.80
|
(1)
The weighted average share
price at the date of exercise was CAD$0.70.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
A summary of the
Company’s stock options outstanding at September 30, 2019 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 $
0.74
|
|
3.27
|
|
7,307,643
|
$
|
0.63
|
$ 0.75 to $
0.99
|
|
|
|
|
2.44
|
|
5,407,600
|
|
0.85
|
$ 1.00 to $
1.39
|
|
|
|
|
0.44
|
|
1,104,000
|
|
1.09
|
Stock options
outstanding - end of period
|
|
|
|
2.72
|
|
13,819,243
|
$
|
0.76
|
Options
outstanding at September 30, 2019 expire between March 2020 and
August 2024.
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 assumptions used in the model to determine the fair value of
options granted:
|
|
|
|
Nine Months
Ended
|
|
|
|
|
September 30,
2019
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
|
1.31% -
1.65%
|
Expected stock
price volatility
|
|
|
|
44.65% -
49.46%
|
Expected
life
|
|
|
|
3.4 to 3.5
years
|
Expected dividend
yield
|
|
|
|
-
|
Fair value
per share under options granted
|
|
|
CAD$0.19 -
CAD$0.26
|
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. 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 and 2019 to-date 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 the performance
vesting conditions and PSUs granted in 2019 vest ratably over a
period of four years.
A continuity
summary of the RSUs and PSUs of the Company granted under the share
unit plan is presented below:
|
|
RSUs
|
|
PSUs
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Number
of
|
|
Fair
Value
|
|
Number
of
|
|
Fair
Value
|
|
|
Common
|
|
Per
RSU
|
|
Common
|
|
Per
PSU
|
|
|
Shares
|
|
(CAD)
|
|
Shares
|
|
(CAD)
|
|
|
|
|
|
|
|
|
|
Units outstanding
– December 31, 2018
|
|
1,200,432
|
$
|
0.65
|
|
2,200,000
|
$
|
0.65
|
Grants
|
|
1,927,000
|
|
0.73
|
|
240,000
|
|
0.69
|
Exercises
|
|
(373,333)
|
|
0.70
|
|
(60,000)
|
|
0.65
|
Forfeits
|
|
-
|
|
-
|
|
(240,000)
|
|
0.65
|
Units outstanding
– September 30, 2019
|
|
2,754,099
|
$
|
0.70
|
|
2,140,000
|
$
|
0.65
|
Units
vested – September 30, 2019
|
|
303,810
|
$
|
0.65
|
|
380,000
|
$
|
0.65
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
19. ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated
other comprehensive income (loss) balance consists of:
|
|
|
|
At September
30
|
|
At December
31
|
(in thousands of
CAD dollars)
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Cumulative
foreign currency translation
|
|
|
$
|
407
|
$
|
403
|
Unamortized
experience gain-post employment liability
|
|
|
|
|
Gross
|
|
|
|
983
|
|
983
|
Tax
effect
|
|
|
|
(259)
|
|
(259)
|
|
|
|
$
|
1,131
|
$
|
1,127
|
20. SUPPLEMENTAL
FINANCIAL INFORMATION
The components of
operating expenses are as follows:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Cost of goods and
services sold:
|
|
|
|
|
|
|
|
|
Operating
overheads:
|
|
|
|
|
|
|
|
|
Mining, other
development expense
|
$
|
(294)
|
$
|
(1,575)
|
$
|
(1,012)
|
$
|
(3,071)
|
Milling,
conversion expense
|
|
(485)
|
|
(530)
|
|
(2,241)
|
|
(2,395)
|
Less
absorption:
|
|
|
|
|
|
|
|
|
-Mineral
properties
|
|
14
|
|
12
|
|
36
|
|
36
|
Cost of
services
|
|
(2,059)
|
|
(2,090)
|
|
(6,362)
|
|
(6,167)
|
Cost of goods and
services sold
|
|
(2,824)
|
|
(4,183)
|
|
(9,579)
|
|
(11,597)
|
Reclamation asset
amortization
|
|
(53)
|
|
(48)
|
|
(159)
|
|
(142)
|
Operating
expenses
|
$
|
(2,877)
|
$
|
(4,231)
|
$
|
(9,738)
|
$
|
(11,739)
|
The components of
other income (expense) are as follows:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Gains (losses)
on:
|
|
|
|
|
|
|
|
|
Foreign
exchange
|
$
|
-
|
$
|
1
|
$
|
1
|
$
|
-
|
Disposal of
property, plant and equipment
|
|
5
|
|
81
|
|
5
|
|
117
|
Investment fair
value through profit (loss)
|
|
(825)
|
|
654
|
|
(1,172)
|
|
(2,521)
|
Other
|
|
(108)
|
|
(72)
|
|
(290)
|
|
(250)
|
Other
income (expense)
|
$
|
(928)
|
$
|
664
|
$
|
(1,456)
|
$
|
(2,654)
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
The components of
finance income (expense) are as follows:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Interest
income
|
$
|
141
|
$
|
195
|
$
|
479
|
$
|
857
|
Interest
expense
|
|
(1)
|
|
-
|
|
(4)
|
|
-
|
Accretion
expense
|
|
|
|
|
|
|
|
|
Deferred
revenue (note 12)
|
|
(801)
|
|
(829)
|
|
(2,402)
|
|
(2,486)
|
Post-employment
benefits (note 13)
|
|
(18)
|
|
(18)
|
|
(53)
|
|
(54)
|
Reclamation
obligations (note 14)
|
|
(340)
|
|
(329)
|
|
(1,020)
|
|
(987)
|
Debt
obligations (note 15)
|
|
(18)
|
|
-
|
|
(58)
|
|
-
|
Finance
expense-net
|
$
|
(1,037)
|
$
|
(981)
|
$
|
(3,058)
|
$
|
(2,670)
|
A summary of
depreciation expense recognized in the statement of income (loss)
is as follows:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Mining, other
development expense
|
$
|
-
|
$
|
-
|
$
|
(2)
|
$
|
(2)
|
Milling,
conversion expense
|
|
(482)
|
|
(529)
|
|
(2,223)
|
|
(2,395)
|
Cost of
services
|
|
(72)
|
|
(54)
|
|
(206)
|
|
(177)
|
Exploration and
evaluation
|
|
(57)
|
|
(31)
|
|
(163)
|
|
(93)
|
General and
administrative
|
|
(32)
|
|
(9)
|
|
(95)
|
|
(31)
|
Depreciation
expense-gross
|
$
|
(643)
|
$
|
(623)
|
$
|
(2,689)
|
$
|
(2,698)
|
A summary of
employee benefits expense recognized in the statement of income
(loss) is as follows:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Salaries and
short-term employee benefits
|
$
|
(1,981)
|
$
|
(1,984)
|
$
|
(6,521)
|
$
|
(6,324)
|
Share-based
compensation
|
|
(465)
|
|
(473)
|
|
(1,772)
|
|
(1,338)
|
Termination
benefits
|
|
(29)
|
|
-
|
|
(512)
|
|
(19)
|
Employee
benefits expense
|
$
|
(2,475)
|
$
|
(2,457)
|
$
|
(8,805)
|
$
|
(7,681)
|
The change in
non-cash working capital items in the consolidated statements of
cash flows is as follows:
|
|
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Change in
non-cash working capital items:
|
|
|
|
|
|
|
|
|
Trade and other
receivables
|
|
|
|
|
$
|
97
|
$
|
622
|
Inventories
|
|
|
|
|
|
(36)
|
|
(284)
|
Prepaid expenses
and other assets
|
|
|
|
|
|
257
|
|
115
|
Accounts payable
and accrued liabilities
|
|
|
|
|
|
2,348
|
|
(595)
|
Change
in non-cash working capital items
|
|
|
|
|
$
|
2,666
|
$
|
(142)
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
21. 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 includes activities related to exploration,
evaluation and development, mining, milling (including toll
milling) and the sale of mineral concentrates. 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 from UPC has been included with general corporate
expenses due to the shared infrastructure between the two
activities.
For the nine
months ended September 30, 2019, reportable segment results were as
follows:
(in thousands of
CAD dollars)
|
|
|
Mining
|
DES
|
Corporate
and
Other
|
Total
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
Revenues
|
|
|
3,243
|
6,866
|
1,484
|
11,593
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating
expenses
|
|
|
(3,376)
|
(6,362)
|
-
|
(9,738)
|
Exploration and
evaluation
|
|
|
(11,846)
|
-
|
-
|
(11,846)
|
General and
administrative
|
|
|
(17)
|
-
|
(5,671)
|
(5,688)
|
|
|
|
(15,239)
|
(6,362)
|
(5,671)
|
(27,272)
|
Segment income
(loss)
|
|
|
(11,996)
|
504
|
(4,187)
|
(15,679)
|
|
|
|
|
|
|
|
Revenues – supplemental:
|
|
|
|
|
|
|
Environmental
services
|
|
|
-
|
6,866
|
-
|
6,866
|
Management
fees
|
|
|
-
|
-
|
1,484
|
1,484
|
Toll milling
services–deferred revenue
|
|
|
3,243
|
-
|
-
|
3,243
|
|
|
|
3,243
|
6,866
|
1,484
|
11,593
|
|
|
|
|
|
|
|
Capital additions:
|
|
|
|
|
|
|
Property, plant
and equipment
|
|
|
549
|
272
|
38
|
859
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
Plant and
equipment
|
|
|
|
|
|
|
Cost
|
|
|
99,108
|
4,718
|
908
|
104,734
|
Accumulated
depreciation
|
|
|
(23,507)
|
(3,102)
|
(272)
|
(26,881)
|
Mineral
properties
|
|
|
179,393
|
-
|
-
|
179,393
|
|
|
|
254,994
|
1,616
|
636
|
257,246
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
For the three
months ended September 30, 2019, reportable segment results were as
follows:
(in thousands of
CAD dollars)
|
|
|
Mining
|
DES
|
Corporate
and
Other
|
Total
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
Revenues
|
|
|
696
|
2,222
|
560
|
3,478
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating
expenses
|
|
|
(818)
|
(2,059)
|
-
|
(2,877)
|
Exploration and
evaluation
|
|
|
(4,591)
|
-
|
-
|
(4,591)
|
General and
administrative
|
|
|
(2)
|
-
|
(1,655)
|
(1,657)
|
|
|
|
(5,411)
|
(2,059)
|
(1,655)
|
(9,125)
|
Segment income
(loss)
|
|
|
(4,715)
|
163
|
(1,095)
|
(5,647)
|
|
|
|
|
|
|
|
Revenues – supplemental:
|
|
|
|
|
|
|
Environmental
services
|
|
|
-
|
2,222
|
-
|
2,222
|
Management
fees
|
|
|
-
|
-
|
560
|
560
|
Toll milling
services–deferred revenue
|
|
|
696
|
-
|
-
|
696
|
|
|
|
696
|
2,222
|
560
|
3,478
|
For the nine
months ended September 30, 2018, reportable segment results were as
follows:
(in thousands of
CAD dollars)
|
|
|
Mining
|
DES
|
Corporate
and
Other
|
Total
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
Revenues
|
|
|
3,000
|
6,883
|
1,523
|
11,406
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating
expenses
|
|
|
(5,572)
|
(5,971)
|
(196)
|
(11,739)
|
Exploration and
evaluation
|
|
|
(14,018)
|
-
|
-
|
(14,018)
|
General and
administrative
|
|
|
(17)
|
-
|
(5,361)
|
(5,378)
|
Impairment
reversal
|
|
11
|
-
|
-
|
11
|
|
|
|
(19,596)
|
(5,971)
|
(5,557)
|
(31,124)
|
Segment income
(loss)
|
|
|
(16,596)
|
912
|
(4,034)
|
(19,718)
|
|
|
|
|
|
|
|
Revenues – supplemental:
|
|
|
|
|
|
|
Environmental
services
|
|
|
-
|
6,883
|
-
|
6,883
|
Management
fees
|
|
|
-
|
-
|
1,523
|
1,523
|
Toll milling
services–deferred revenue
|
|
|
3,000
|
-
|
-
|
3,000
|
|
|
|
3,000
|
6,883
|
1,523
|
11,406
|
|
|
|
|
|
|
|
Capital additions:
|
|
|
|
|
|
|
Property, plant
and equipment
|
|
|
975
|
85
|
-
|
1,060
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
Plant and
equipment
|
|
|
|
|
|
|
Cost
|
|
|
98,573
|
4,389
|
294
|
103,256
|
Accumulated
depreciation
|
|
|
(20,231)
|
(2,870)
|
(170)
|
(23,271)
|
Mineral
properties
|
|
|
167,018
|
-
|
-
|
167,018
|
|
|
|
245,360
|
1,519
|
124
|
247,003
|
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
For the three
months ended September 30, 2018, reportable segment results were as
follows:
(in thousands of
CAD dollars)
|
|
|
Mining
|
DES
|
Corporate
and
Other
|
Total
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
Revenues
|
|
|
755
|
2,365
|
609
|
3,729
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating
expenses
|
|
|
(2,141)
|
(2,051)
|
(39)
|
(4,231)
|
Exploration and
evaluation
|
|
|
(3,894)
|
-
|
-
|
(3,894)
|
General and
administrative
|
|
|
-
|
-
|
(1,657)
|
(1,657)
|
|
|
|
(6,035)
|
(2,051)
|
(1,696)
|
(9,782)
|
Segment income
(loss)
|
|
|
(5,280)
|
314
|
(1,087)
|
(6,053)
|
|
|
|
|
|
|
|
Revenues – supplemental:
|
|
|
|
|
|
|
Environmental
services
|
|
|
-
|
2,365
|
-
|
2,365
|
Management
fees
|
|
|
-
|
-
|
609
|
609
|
Toll milling
services–deferred revenue
|
|
|
755
|
-
|
-
|
755
|
|
|
|
755
|
2,365
|
609
|
3,729
|
22. RELATED
PARTY TRANSACTIONS
Uranium
Participation Corporation
The previous
management services agreement with UPC expired on March 31, 2019.
Effective April 1, 2019, a new management services agreement
(“MSA”) was entered into for a term of five years (the
“Term”). Under the MSA, Denison continues to receive
the following management fees from UPC, unchanged from the previous
agreement: 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 U3O8 or UF6); and d) a
commission of 1.0% of the gross value of any purchases or sales of
U3O8 or UF6 or gross interest
fees payable to UPC in connection with any uranium loan
arrangements.
The MSA may be
terminated during the Term by Denison upon the provision of 180
days written notice. The MSA may be terminated during the Term by
UPC (i) in the event of a material breach, (ii) within 90 days of
certain events surrounding a change of both of the individuals
serving as Chief Executive Officer and Chief Financial Officer of
UPC, and / or a change of control of Denison, or (iii) upon the
provision of 30 days written notice and, subject to certain
exceptions, a cash payment to Denison of an amount equal to the
base and variable management fees that would otherwise be payable
to Denison (calculated based on UPC’s current uranium
holdings at the time of termination) for the lesser period of a)
three years, or b) the remaining term of the MSA.
The following
transactions were incurred with UPC for the periods
noted:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Management
fees:
|
|
|
|
|
|
|
|
|
Base and variable
fees
|
$
|
453
|
$
|
481
|
$
|
1,374
|
$
|
1,250
|
Discretionary
fees
|
|
-
|
|
-
|
|
-
|
|
50
|
Commission
fees
|
|
107
|
|
128
|
|
110
|
|
223
|
|
$
|
560
|
$
|
609
|
$
|
1,484
|
$
|
1,523
|
At September 30,
2019, accounts receivable includes $356,000 (December 31, 2018:
$303,000) due from UPC with respect to the fees indicated
above.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
Korea
Electric Power Corporation (“KEPCO”) and Korea Hydro
& Nuclear Power (“KHNP”)
As at September
30, 2019, KEPCO, through its subsidiaries, holds 58,284,000 shares
of Denison representing a share interest of approximately 9.87%.
KHNP Canada Energy Ltd., a subsidiary of KEPCO’s subsidiary
KHNP, is the holder of the majority of such Denison shares and is
also the majority member of 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 Waterbury Lake
Uranium Limited Partnership (“WLULP”), entities whose
key asset is the Waterbury Lake property.
For fiscal 2019
spending programs, KWULP has elected not to fund the Waterbury
project and dilute their interest, leaving Denison as the sole
funding party. In May 2019, Denison funded a portion of the
approved fiscal 2019 program for Waterbury Lake which resulted in
the further dilution of KWULP’s interest in the WLULP. As a
result, Denison earned an additional 0.59% interest in the WLULP,
increasing Denison’s interest to 66.51% from 65.92%. The
additional interest has been accounted for using an effective date
of May 31, 2019 and has 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
$409,000.
Other
At the end of
March 2019, the Company had an outstanding loan receivable amount
of $250,000 with GoviEx related to a credit agreement between the
parties (see note 6). The loan was unsecured and bore interest at
7.5% per annum. In April 2019, the loan was repaid in full,
together with interest thereon.
During the nine
months ended September 30, 2019, the Company incurred investor
relations, administrative service fees and other expenses of
$199,000 (September 30, 2018: $100,000) 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 September 30, 2019, an amount of $ nil (December 31,
2018: $ 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:
|
|
Three
Months Ended
September
30
|
|
Nine
Months Ended
September
30
|
(in thousands of
CAD dollars)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Salaries and
short-term employee benefits
|
$
|
(407)
|
$
|
(422)
|
$
|
(1,536)
|
$
|
(1,275)
|
Share-based
compensation
|
|
(384)
|
|
(385)
|
|
(1,499)
|
|
(1,107)
|
Termination
benefits
|
|
-
|
|
-
|
|
(481)
|
|
-
|
Key
management personnel compensation
|
$
|
(791)
|
$
|
(807)
|
$
|
(3,516)
|
$
|
(2,382)
|
23. INCOME
TAXES
For the nine
months ended September 30, 2019, Denison has recognized deferred
tax recoveries of $3,976,000. The deferred tax recovery includes
the recognition of previously unrecognized Canadian tax assets of
$1,337,000 relating to the February 2019 renunciation of the tax
benefits associated with the Company’s $5,000,000
flow-through share issue in November 2018.
24. 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.
|
INTERIM 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, or the variable interest rate
associated with the instruments, or the fixed interest rate of the
instruments being similar to market rates.
The following
table illustrates the classification of the Company’s
financial assets within the fair value hierarchy as at September
30, 2019 and December 31, 2018:
|
|
|
|
|
|
September
30
|
|
December
31,
|
|
|
Financial
|
|
Fair
|
|
2019
|
|
2018
|
|
|
Instrument
|
|
Value
|
|
Fair
|
|
Fair
|
(in thousands of
CAD dollars)
|
|
Category(1)
|
|
Hierarchy
|
|
Value
|
|
Value
|
|
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
Cash and
equivalents
|
|
Category
B
|
|
|
$
|
10,432
|
$
|
23,207
|
Trade and other
receivables
|
|
Category
B
|
|
|
|
3,725
|
|
4,072
|
Investments
|
|
|
|
|
|
|
|
|
Equity
instruments-shares
|
|
Category
A
|
|
Level
1
|
|
1,386
|
|
2,007
|
Equity
instruments-warrants
|
|
Category
A
|
|
Level
2
|
|
68
|
|
248
|
Restricted
cash and equivalents
|
|
|
|
|
|
|
|
|
Elliot Lake
reclamation trust fund
|
|
Category
B
|
|
|
|
3,042
|
|
3,120
|
Credit
facility pledged assets
|
|
Category
B
|
|
|
|
9,000
|
|
9,000
|
Reclamation
letter of credit collateral
|
|
Category
B
|
|
|
|
135
|
|
135
|
|
|
|
|
|
$
|
27,788
|
$
|
41,789
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
Category
C
|
|
|
|
7,897
|
|
5,554
|
Debt
obligations
|
|
Category
C
|
|
|
|
874
|
|
-
|
|
|
|
|
|
$
|
8,771
|
$
|
5,554
|
(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.
25. CONTINGENCIES
Specific
Legal Matters
Mongolia
Mining Division Sale – Arbitration Proceedings with Uranium
Industry
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.
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.
|
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
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 formal submissions have been made by each party. As of the date
hereof, arbitration proceedings are continuing with hearings
scheduled to commence in December 2019.
Exhbit 99.2
MANAGEMENT’S DISCUSSION & ANALYSIS
|
MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2019
TABLE OF CONTENTS
|
|
2019 THIRD
QUARTER PERFORMANCE HIGHLIGHTS
|
2
|
ABOUT
DENISON
|
2
|
RESULTS OF
OPERATIONS
|
4
|
Wheeler River
Project
|
7
|
Exploration
Pipeline Properties
|
18
|
LIQUIDITY AND
CAPITAL RESOURCES
|
18
|
OUTLOOK FOR
2019
|
21
|
ADDITIONAL
INFORMATION
|
21
|
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
|
22
|
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 November
7, 2019 and should be read in conjunction with the Company’s
unaudited interim condensed consolidated financial statements and
related notes for the three and nine months ended September 30,
2019. The unaudited interim condensed consolidated financial
statements are prepared in accordance with International Financial
Reporting Standards (‘IFRS’) as issued by the
International Accounting Standards Board (‘IASB’).
Readers are also encouraged to consult the audited consolidated
financial statements and MD&A for the year ended December 31,
2018. All dollar amounts in this MD&A are expressed in Canadian
dollars, unless otherwise noted.
Additional
information about Denison, including the Company’s press
releases, quarterly and annual reports, Annual Information Form and
Form 40-F is available through the Company’s filings with the
securities regulatory authorities in Canada at www.sedar.com
(‘SEDAR’) and the United States at
www.sec.gov/edgar.shtml (‘EDGAR’).
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
2019 THIRD QUARTER PERFORMANCE HIGHLIGHTS
During the third
quarter of 2019, the Company made several positive announcements
related to the ongoing In-Situ Recovery (‘ISR’) field
testing taking place at the Phoenix deposit (‘Phoenix’)
on the Company’s 90% owned Wheeler River Uranium Project
(‘Wheeler River’) in northern Saskatchewan,
Canada.
■
Positive initial results from
ISR field testing confirm hydraulic connectivity within the Phoenix
Deposit.
During the third
quarter of 2019, the Company announced positive initial results
from ISR field testing at Phoenix. The initial test results
confirmed hydraulic connectivity between all of the ore zone test
wells in Test Area 1 (see Denison’s press release dated
August 27, 2019) and a significant portion of the ore zone in Test
Area 2 (see Denison’s press release dated September 19, 2019)
– providing significant preliminary indications of the
suitability for the application of ISR mining at
Phoenix.
■
Successful installation of commercial scale test wells in Test Area
1 and Test Area 2
Following
confirmation of hydraulic connectivity within Phoenix described
above, Denison initiated the second stage of ISR field testing
– the installation of a large-diameter Commercial Scale Wells
(‘CSWs’) in each of Test Area 1 and Test Area 2 (see
Denison’s press release dated October 31, 2019). CSW1 (drill
hole GWR-031, in Test Area 1) and CSW2 (drill hole GWR-032, in Test
Area 2) represent the first large-diameter CSWs successfully
installed, for the purposes of ISR mining, in the Athabasca Basin
region. The completion of each CSW included the drilling of a
large-diameter bore hole (approximately 12 inches in diameter)
approximately 400 metres from surface, to intersect the Phoenix ore
body, and the installation of well materials that have been
designed to meet expected environmental and regulatory standards
for eventual ISR mining.
■
Successful deployment and operational testing of MaxPERF drilling
tool
Penetrators
Canada Inc., developers and operators of the MaxPERF drilling tool,
successfully deployed the tool within CSW1 and completed 28 lateral
drill holes (penetration tunnels) within a variety of ore types
associated with Phoenix. Following the completion of the MaxPERF
drilling array in CSW1, initial, short-duration / operational
hydrogeological tests confirmed increased flow rates in Test Area 1
– demonstrating the effectiveness of the MaxPERF drilling
tool in providing increased access to hydraulic connectivity
associated with the existing geological formations within the ore
zone. Deployment of the MaxPERF tool is planned to follow at CSW2
during the remainder of the 2019 ISR Field Test
program.
■
ISR field program nearing completion with long-duration tests
planned as final stage
Based on the
successful completion of CSW1 and CSW2, as well as the successful
deployment of the MaxPERF tool, long-duration (commercial scale)
hydrogeological tests are planned to be completed during the
remainder of the 2019 ISR field test. These tests are expected to
be carried out in both CSW1 and CSW2 to allow for the simulation of
fluid flow, within Test Area 1 and Test Area 2 of Phoenix, under
conditions similar to a commercial production
environment.
ABOUT DENISON
Denison Mines
Corp. was formed under the laws of Ontario and is a reporting
issuer in all Canadian provinces. Denison’s common shares are
listed on the Toronto Stock Exchange (the ‘TSX’) under
the symbol ‘DML’ and on the NYSE American exchange
under the symbol ‘DNN’.
Denison is a
uranium exploration and development company with interests focused
in the Athabasca Basin region of northern Saskatchewan, Canada. The
Company’s flagship project is the 90% owned Wheeler River
Uranium Project, which is the largest undeveloped uranium project
in the infrastructure rich eastern portion of the Athabasca Basin
region of northern Saskatchewan. A Pre-feasibility Study
(‘PFS’) was completed for Wheeler River in late 2018,
considering the potential economic merit of developing the Phoenix
deposit as an ISR operation and the Gryphon deposit as a
conventional underground mining operation. 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 66.51% 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. In
addition, Denison has an extensive portfolio of exploration
projects in the Athabasca Basin region.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
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 to 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 (‘U3O8’) and
uranium hexafluoride (‘UF6’).
SELECTED QUARTERLY FINANCIAL INFORMATION
(in
thousands)
|
|
As at
September 30,
2019
|
|
As at
December 31,
2018
|
|
|
|
|
|
Financial Position:
|
|
|
|
|
Cash and cash
equivalents
|
$
|
10,432
|
$
|
23,207
|
|
|
|
|
|
Working
capital
|
$
|
4,594
|
$
|
19,221
|
Property, plant
and equipment
|
$
|
257,246
|
$
|
258,291
|
Total
assets
|
$
|
296,475
|
$
|
312,187
|
Total long-term
liabilities(1)
|
$
|
74,940
|
$
|
77,455
|
(1)
Predominantly comprised of
the non-current portion of deferred revenue, non-current
reclamation obligations, and deferred income tax
liabilities.
|
|
|
|
2019
|
|
2019
|
|
2019
|
|
2018
|
(in
thousands, except for per share amounts)
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
3,478
|
$
|
4,139
|
$
|
3,976
|
$
|
4,144
|
Net
loss
|
$
|
(6,424)
|
$
|
(4,884)
|
$
|
(5,335)
|
$
|
(13,642)
|
Basic and diluted
loss per share
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
(0.02)
|
|
|
|
|
2018
|
|
2018
|
|
2018
|
|
2017
|
(in
thousands, except for per share amounts)
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
3,729
|
$
|
4,104
|
$
|
3,573
|
$
|
4,536
|
Net
loss
|
$
|
(3,884)
|
$
|
(5,583)
|
$
|
(6,968)
|
$
|
(1,833)
|
Basic and diluted
loss per share
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
-
|
|
|
|
|
|
|
|
|
|
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 uranium mill as well as changes to the
estimated mineral resources of the Cigar Lake mine.
●
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 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 Inc. (‘Orano Canada’) with
a 70% interest, Denison with a 22.5% interest, and OURD (Canada)
Co. Ltd. with a 7.5% interest.
In February 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.
During the three
and nine months ended September 30, 2019, the McClean Lake mill
processed 2.7 and 12.6 million pounds U3O8 for the CLJV,
respectively (September 30, 2018 – 2.9 and 13.1 million
pounds U3O8) and recorded
toll milling revenue of $696,000 and $3,243,000, respectively
(September 30, 2018 – $755,000 and $3,000,000). The decrease
in toll milling revenue in the quarter ended September 30, 2019, as
compared to the prior year quarter, is due to a decrease in pounds
U3O8 processed by the
mill in the third quarter of 2019 as compared to the third quarter
of 2018. The increase in toll milling revenue in the nine months
ended September 30, 2019, as compared to the prior year period, is
predominantly the result of an update to the published Cigar Lake
mineral resource estimate in the first quarter of 2018 which
resulted in the Company recording a negative non-cash cumulative
catch-up accounting adjustment of $332,000, which reduced the
recorded toll milling revenue. During the first quarter of 2019,
the Company recorded a nominal $26,000 positive non-cash cumulative
accounting adjustment related to the Cigar Lake mineral resource
estimate update published in that quarter.
During the three
and nine months ended September 30, 2019, the Company also recorded
accounting accretion expense of $801,000 and $2,402,000,
respectively, on the toll milling deferred revenue balance
(September 30, 2018 – $829,000 and $2,486,000). The annual
accretion expense will decrease over the life of the contract as
the deferred revenue liability decreases over time.
Denison Environmental Services
Mine
decommissioning and environmental services are provided through
Denison’s DES division – providing long-term care and
maintenance for closed mine sites since 1997. With operations in
Ontario, the Yukon Territory and Quebec, DES manages
Denison’s Elliot Lake reclamation projects and provides
post-closure mine care and maintenance services.
Revenue from DES
during the three and nine months ended September 30, 2019 was
$2,222,000 and $6,866,000 (September 30, 2018 - $2,365,000 and
$6,883,000). The decrease in revenue during the three months ended
September 30, 2019, as compared to the prior period, was due to a
decrease in activity at certain care and maintenance sites, as well
as a decrease in environmental consulting activities during the
quarter. The decrease in revenue in the nine months ended September
30, 2019, as compared to the prior period, was due to a decrease in
environmental consulting activities, slightly offset by an increase
in activity at certain care and maintenance sites during the second
quarter of 2019.
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 the three
and nine months ended September 30, 2019, revenue from the
Company’s management contract with UPC was $560,000 and
$1,484,000, respectively (September 30, 2018 - $609,000 and
$1,523,000). The decrease in revenues during the three months ended
September 30, 2019, compared to the prior year, was due to a
decrease in management fees earned based on UPC’s monthly net
asset value (‘NAV’), as well as a decrease in
commission-based fees.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The decrease in
revenues during the nine months ended September 30, 2019, compared
to the prior year, was due to an increase in NAV-based management
fees, more than offset by a decrease in commission-based and
discretionary fees. UPC’s balance sheet consists primarily of
uranium held either in the form of U3O8 or UF6, which is
accounted for at its fair value. The decrease in NAV-based
management fees during the third quarter was due to the decrease in
the average fair value of UPC’s uranium holdings during the
three months ended September 30, 2019, compared to the prior year,
resulting from lower uranium spot prices. The increase in NAV-based
management fees during the nine months ended September 30, 2019, as
compared to the prior period, was due to the increase in the
average fair value of UPC’s uranium holdings, resulting from
both increased uranium spot prices and increased uranium holdings.
The decrease in commission-based fees in both the three and nine
months ended September 30, 2019 was due to a decrease in uranium
purchases and sales by UPC during the current periods, as compared
to the prior year. 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 also include certain adjustments, when
applicable, to the estimates of future reclamation liabilities at
McClean Lake, Midwest and Elliot Lake.
Operating
expenses in the three and nine months ended September 30, 2019 were
$818,000 and $3,376,000, respectively (September 30, 2018 –
$2,141,000 and $5,572,000), including depreciation expense relating
to the McClean Lake mill of $482,000 and $2,223,000 (September 30,
2018 - $529,000 and $2,395,000), as a result of processing
approximately 2.7 and 12.6 million pounds U3O8, respectively,
for the CLJV (September 30, 2018 – 2.9 and 13.1 million
pounds).
In the three and
nine months ended September 30, 2019, operating expenses also
included development and other operating costs related to the MLJV
of $335,000 and $1,152,000 (September 30, 2018 – $1,610,000
and $3,176,000), 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.
Environmental Services
Operating
expenses during the three and nine months ended September 30, 2019
totaled $2,059,000 and $6,362,000 respectively (September 30, 2018
- $2,051,000 and $5,971,000). The expenses relate primarily to care
and maintenance and consulting services provided to clients, and
include labour and other costs.
CANADIAN MINERAL PROPERTY EXPLORATION & EVALUATION
During the three
and nine months ended September 30, 2019, Denison’s share of
exploration and evaluation expenditures were $4,591,000 and
$11,846,000, respectively (September 30, 2018 - $3,894,000 and
$14,018,000). The increase in exploration and evaluation
expenditures during the three months ended September 30, 2019,
compared to the prior period, was predominantly due to an increase
in evaluation expenditures, partly offset by a decrease in summer
exploration activities. The decrease in exploration and evaluation
expenditures during the nine months ended September 30, 2019,
compared to the prior period, was predominantly due to a decrease
in winter and summer exploration activities, partly offset by an
increase in evaluation expenditures.
Exploration
spending in the Athabasca Basin is generally seasonal in nature,
with spending higher during the winter field season (January to
mid-April) and summer field season (June to mid-October). The
following table summarizes the 2019 exploration and evaluation
activities completed through the end of October. The exploration
drilling relates to the Company’s summer and winter 2019
exploration programs, while the evaluation drilling relates to the
Wheeler River ISR field test – including the installation of
preliminary ISR test wells in small diameter diamond drill holes,
and commercial scale wells in large diameter drill
holes.
All exploration
and evaluation expenditure information in this MD&A covers the
three and nine months ending September 30, 2019.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
CANADIAN EXPLORATION & EVALUATION ACTIVITIES
|
Property
|
Denison’s Ownership
|
Exploration
Drilling(5)
|
Evaluation Drilling
|
Other Activities
|
Wheeler
River
|
90%(1)
|
10,573 m (20
holes)
|
9,632 m (30 small
diameter wells)(6)
821 m (2 large
diameter well)(7)
|
ISR Field
Testing,
Engineering,
EA
|
Waterbury
Lake
|
66.51%(2)
|
5,735 m (15
holes)
|
-
|
|
Hook-Carter
|
80%(3)
|
4,797 m (6
holes)
|
-
|
|
Waterfound
River
|
14.42%(4)
|
5,110 m (7
holes)
|
-
|
|
Total
|
|
26,215 m (48 holes)
|
10,453 m (32 holes)
|
|
Notes:
1.
JCU (Canada) Exploration
Company Limited (‘JCU’) is currently funding their 10%
portion of exploration and evaluation expenditures and therefore
ownership interests are not expected to change during
2019.
2.
The Company’s ownership
as at September 30, 2019. The partner, Korea Waterbury Uranium
Limited Partnership (‘KWULP’), has elected not to fund
the 2019 exploration program and will dilute its ownership
interest. As a result, Denison’s interest will
increase.
3.
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 CAD$12.0 million in expenditures on
the project.
4.
Denison’s ownership
interest as at December 31, 2018. Denison elected not to fund its
14.42% share of the $1,600,000 2019 drilling program planned by the
operator, Orano Canada. Accordingly, Denison’s ownership
interest will decrease.
5.
The Company reports total
exploration metres drilled and the number of holes that were
successfully completed to their target depth.
6.
Small diameter evaluation
drilling includes HQ/PQ sized diamond drilling either as the
widening (reaming) of existing exploration drill holes, or the
drilling of new holes, for the purposes of installing test wells
for ISR field testing at Phoenix. Figures include total evaluation
metres drilled and total number of holes completed.
7.
Large diameter evaluation
drilling relates to the drilling and installation of new large
diameter CSWs from surface for the purposes of ISR field testing at
Phoenix. Figures include total evaluation metres drilled and total
number of holes completed.
The
Company’s land position in the Athabasca Basin, as of
September 30, 2019, is illustrated in the figure below. The
Company’s Athabasca land package increased marginally during
the third quarter of 2019 from 305,305 hectares (212 claims) to
305,658 hectares (213 claims) due to area reductions of claims
belonging to the Moon Lake and Wolverine properties, more than
offset by the staking of a claim to the north of the Bell Lake
property.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
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 U3O8.
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 U3O8 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 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.
On December 18,
2018, Denison reported that the Company's Board of Directors and
the Wheeler River Joint Venture (‘WRJV’) approved the
advancement of Wheeler River, following a detailed assessment of
the PFS results. In support of the decision to advance Wheeler
River, the WRJV plans to initiate the Environmental Impact
Assessment (‘EIA’) process as well as engineering
studies and related programs required to advance the high-grade
Phoenix deposit as an ISR mining operation.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
●
Environmental
advantages of the proposed Wheeler River ISR mine
The Company's
evaluation of the ISR mining method has identified several
significant environmental and permitting advantages –
particularly when compared to the impacts associated with
conventional uranium mining in Canada. The Project's ISR mining
operation is expected to produce no tailings, generate very small
volumes of waste rock, and has the potential for low volumes or
possibly no water discharge to surface water bodies, as well as the
potential to use the existing power grid to operate on a near zero
carbon emissions basis. The proposed use of a freeze wall, to
encapsulate the ore zone and contain the mining solution used in
the ISR operation, streamlines the mining process, minimizes
interaction with the environment, and facilitates controlled
reclamation of the site at decommissioning. Taken together, the
Project has the potential to be one of the most environmentally
friendly uranium mining and processing operations in the world.
Owing largely to these benefits, engagement with local Indigenous
communities, the public, and federal and provincial
representatives, to date, has been encouraging regarding the use of
ISR mining.
●
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 U3O8
(Phoenix 59.7 million pounds U3O8 from 141,000
tonnes at 19.1% U3O8; Gryphon 49.7
million pounds U3O8 from 1,257,000
tonnes at 1.8% U3O8);
●
Indicated mineral resources (inclusive of
reserves) of 132.1 million pounds U3O8
(1,809,000 tonnes at an average grade of 3.3% U3O8);
plus
●
Inferred mineral resources of 3.0 million
pounds U3O8 (82,000
tonnes at an average grade of 1.7% U3O8).
●
Potential
for resource growth
Potential exists
for resource growth, outside of the currently defined mineral
resources, at both the Phoenix and Gryphon deposits. At Phoenix,
potential exists to expand mineral resources, particularly in the
‘gap’ area between Zone A and Zone B where insufficient
drilling exists, and through definition drilling at Zone C. Zone C
requires additional drilling in order to estimate mineral resources
and is highlighted by previous mineralized drill intercepts of
1.59% U3O8 over 3.5 metres
(drill hole WR-328), 1.40% U3O8 over 4.0 metres
(drill hole WR-253), and 1.59% U3O8 over 2.0 metres
(drill hole WR-368). At Gryphon, potential exists to expand mineral
resources both along strike, and down-plunge, of the currently
defined A Series Lenses.
Outside of the
Phoenix and Gryphon deposits, Wheeler River has significant
exploration potential for the discovery of additional high-grade
uranium deposits. The Project’s significant repository of
geophysical and historic drilling data has facilitated the
identification of numerous regional high-priority target areas in
accordance with the Company’s latest exploration models. Many
of the target areas have the potential to host high-grade
uniformity-hosted deposits, similar to Phoenix, that may be
amenable to the use of the low-cost ISR mining method identified
for the Phoenix deposit in the Company’s PFS. Following
almost ten years of exploration drilling focused largely on the
Phoenix and Gryphon deposits, a multi-year plan has been developed
to explore these target areas, which commenced in 2018, and is
continuing in 2019.
Further details
regarding Wheeler River, including the estimated mineral reserves
and resources, 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 the PFS Technical Report is available on
Denison’s website and under its profile on each of SEDAR and
EDGAR.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The location of
the Wheeler River property, as well as the Phoenix and Gryphon
deposits, and existing and proposed infrastructure, is shown on the
map provided below.
Evaluation Program
During the three
and nine months ended September 30, 2019, Denison’s share of
evaluation costs at Wheeler River amounted to $4,062,000 and
$6,741,000, respectively (September 30, 2018 - $797,000 and
$2,606,000), which consisted primarily of work related to the
planning and implementation of the ISR field test, other
engineering activities in support of a future Feasibility Study
(‘FS’), and activities related to the EIA
process.
Engineering Activities
ISR Field Test
In
June 2019, Denison announced the commencement of ISR field testing
at the Phoenix uranium deposit, as part of an active summer 2019
field program planned for Wheeler River (see Denison’s press
release dated June 26, 2019). The ISR field test program is
designed to collect an extensive database of hydrogeological data
that will be used to evaluate the ISR mining conditions present at
the deposit, and is expected to be incorporated into a detailed ISR
mine plan, as part of the completion of a future FS for the
project.
The
ISR field testing program has been designed specific to the unique
geological characteristics of the Phoenix deposit and aims to
provide hydrogeological testing across multiple Test Areas of
Phoenix Zone A (see figure below), covering up to approximately 65%
of the Indicated Mineral Resource estimated for the
deposit.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The
Test Areas have been selected with the objective of assessing
various fluid flow domains, and combinations thereof, expected to
exist within the deposit. The domains have been defined from
detailed geological databases and associated models, with the
intention that the Test Areas are collectively representative of
the deposit as a whole. The main objective within each Test Area is
to efficiently establish the fundamental hydrogeologic
characteristics of the orebody, the overlying sandstone and
overburden formations, and the underlying basement rocks. Data
acquired from the ISR field testing is expected to be utilized to
create an integrated hydrogeological model, which will form the
basis for the ISR wellfield and freeze dome design necessary for a
future FS and to support the EIA process.
The
summer 2019 program was designed to assess Test Area 1 and Test
Area 2. The figure below shows the Test Areas delineated for ISR
field testing and the location of the wells installed during
2019.
Test Area 1
In
late August 2019, Denison announced positive initial results from
Test Area 1 with initial pump and injection tests confirming
hydraulic connectivity between all of the test wells within the ore
zone (see Denison’s press release dated August 27, 2019). A
total of two Pump/Injection (‘P/I’) wells and nine
Observation wells were successfully installed within Test Area 1 at
Phoenix Zone A (see figure below). One of the Observation wells
(GWR-020) was fitted with a Vibrating Wire Piezometer
(‘VWP’) equipped with pressure transducers at various
depth locations. Initial pump and injection tests were completed by
pumping water from, or injecting water into, the P/I wells. In each
of the tests completed, a hydraulic response has been observed at
the other P/I well and at all four Observation wells located within
the ore zone test formation (GWR-015, GWR-016, GWR-020 and
GWR-024). Taken together, hydraulic responses have been observed
over the entire 34 metres of strike length associated with the ore
zone formation within Test Area 1 (from GWR-024 to GWR-016 and
GWR-020 VWP) – representing the maximum strike length
response possible in Test Area 1 given the design of the field
test.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Additionally,
no hydraulic response was observed in GWR-004, which was located in
the basement rock underlying the Phoenix deposit. This is
indicative of low permeability conditions within the basement units
below the Phoenix Zone A ore body, which is generally supportive of
the Company’s expectations that the basement units below
Phoenix will be able to provide containment of the ISR mining
solution in conjunction with the planned freeze dome.
The
figures below show the plan map and long section showing P/I wells,
observation wells, and CSW1 completed for ISR field testing in Test
Area 1.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Test Area 2
In
mid-September 2019, Denison announced positive initial results from
Test Area 2 with initial pump and injection tests confirming
hydraulic connectivity within a significant portion of the ore zone
tested (see Denison’s press release dated September 19,
2019). A total of two P/I wells and four Observation wells were
successfully installed within Test Area 2 at Phoenix Zone A (see
figure below). One of the Observation wells (GWR-021) was fitted
with a VWP equipped with pressure transducers at various depth
locations. Initial pump and injection tests were completed by
pumping water from, or injecting water into, the P/I wells. In
tests completed within P/I well GWR-019, a hydraulic response has
been observed at two of three Observation wells located within the
ore zone (GWR-023 and GWR-026). No response was observed in P/I
well GWR-022 or Observation well GWR-021 (Ore Zone - VWP), which
are also located within the ore zone. In tests completed within P/I
well GWR-022, no hydraulic responses were observed at the two
Observation wells within the ore zone (GWR-023 and GWR-026), the
other P/I well (GWR-019) or Observation well GWR-021 (Ore Zone
– VWP). These results are consistent with the hydraulic tests
conducted within P/I well GWR-019 and the geologic observations of
drill core recovered from GWR-022, which indicate high clay
contents.
Taken
together, hydraulic responses have been observed within a
significant portion of the ore zone contained within Test Area 2
– with hydraulic connectivity observed over an approximate
strike length of 15 metres (of a possible 30 metres) and
across-strike length of 16 metres (of a possible 16 metres) –
representing the maximum across-strike length response possible in
Test Area 2, given the design of the field test.
Similar
to the results reported for Test Area 1, no hydraulic response was
reported in the basement from GWR-021 VWP, which is indicative of
low permeability conditions within the basement units below the
Phoenix Zone A orebody, which is generally supportive of the
suitability of the basement units to provide containment of the ISR
mining solution in conjunction with the planned freeze
dome.
The
figures below show plan map and long section showing P/I wells,
observation wells, and CSW2 completed for ISR field testing in Test
Area 2. CSW2 is not shown in the long section as coring, MaxPERF
drilling and well screen installation had not been completed at
time of reporting.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Commercial Scale Wells
The
initial positive ISR field test results obtained from lower-cost /
smaller-diameter HQ and PQ sized wells in Test Area 1 and Test Area
2 provided the confidence and information required to commence with
the next stage of the ISR field test program, which included the
installation and testing of the higher-cost / larger-diameter
CSWs.
In
late October 2019, Denison announced the successful installation of
CSW1 (drill hole GWR-031, in Test Area 1) and CSW2 (drill hole
GWR-032, in Test Area 2), which represent the first large-diameter
CSWs installed for the purpose of ISR mining in the Athabasca Basin
region (see Denison press release dated October 31, 2019). The
completion of each CSW included the drilling of a large-diameter
vertical borehole (approximately 12 inches in diameter)
approximately 400 metres from surface, to intersect the Phoenix ore
body, and the installation of well materials that have been
designed to meet expected environmental and regulatory standards
for eventual ISR mining – including an outer casing and inner
lined casing – with the outer casing cemented in place
– providing a double-walled, fully-sealed piping
system.
Additionally,
Denison reported that Penetrators Canada Inc., developers and
operators of the MaxPERF drilling tool, successfully deployed the
tool within CSW1 and completed a total of 28 lateral drill holes
(penetration tunnels), with an approximate length of 72 inches and
diameter of 0.7 inches each, within the ore zone from seven
different elevations spaced 30 centimeters vertically apart. The
penetration tunnels were completed in a variety of ore types
associated with the Phoenix deposit, including a wide variety of
uranium grades (massive to disseminated uraninite), clay contents
and rock competencies. Importantly, initial short-term
hydrogeological injection testing was carried out both before, and
after, the application of MaxPERF drilling in CSW1, in order to
evaluate the relative differences of injection pressure, flow rate,
permeability, and borehole connectivity with adjacent monitoring
wells. The preliminary hydrogeological test results from CSW1
indicate that there was an increase in flow rates following the
application of MaxPERF drilling, which suggests that the
penetration tunnels have successfully provided increased access to
hydraulic connectivity associated with the existing permeability of
the ore zone.
Additional Supportive Permeability and Porosity Tests
Supportive
permeability and porosity tests, including hydraulic conductivity
tests (packer testing), geological and geotechnical logging, and
permeability (permeameter) testing, were completed for Test Area 1
and Test Area 2 during the third quarter. This significant dataset
will undergo data verification followed by detailed analysis,
reporting, and integration into the hydrogeological model being
developed for Phoenix. In addition, numerous mineralized core
samples from the ore zone, obtained from the summer 2019 field
program, have been preserved to facilitate future planned
laboratory-based metallurgical test work.
Long-Duration ISR Test Planned to Complete ISR Field Test
Program
The
integration and evaluation of the hydrogeological and supportive
permeability and porosity data collected from the 2019 ISR Field
Test is ongoing. To date, this data includes the initial results
from Test Area 1 and 2 (see Denison’s press releases dated
August 27, 2019, and September 19, 2019) and the initial
short-duration test results from CSW1 (described above). Additional
hydrogeological data is expected from long-duration tests expected
to be carried out in both CSW1 and CSW2. Importantly, the
long-duration tests are expected to allow for the simulation of
fluid flow under conditions similar to an envisioned commercial
production environment.
These
data sets, as outlined above, are expected to be incorporated into
the hydrogeological model being developed for Phoenix, which will
facilitate detailed mine planning as part of a future
FS.
The
hydrogeological testing and modelling is being undertaken by
Petrotek Corporation (‘Petrotek’) - specialists in the
technical evaluation and field operation of subsurface fluid flow
and injection projects, including significant ISR experience in
various jurisdictions.
Other Engineering Activities
Metallurgical Testing
During drilling
related to the ISR field test program, core samples were collected
from the ore zone for metallurgical testing. The samples were
collected from the various drill holes in Test Area 1 and Test Area
2 to represent the grade variability of those areas (expected
grades ranging from 1% to 60% U3O8). Several scopes
of metallurgical test work, including bench scale ISR tests and
bench scale metallurgical processing plant tests, are expected to
commence in the fourth quarter. Future process plant tests are
expected to use solution produced from the bench scale ISR tests.
The results of the test work will continue to build on the data
collected during the PFS, as part of a progressive approach to
de-risking the uranium recovery process and to allow for further
definition of the process flow sheet.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Electrical Power Studies
In July 2019,
Denison submitted a request to the provincial power utility
(SaskPower) for the completion of an interconnection study. The
study is expected to provide Denison with guidance on the
connection schedule, as well as capital and engineering costs
expected to be required to connect the Wheeler River site to the
existing the overhead power lines located approximately six
kilometres from the proposed Phoenix ISR operation.
Additional Engineering Activities
Certain
additional engineering activities have commenced to complement the
environmental program, including those required to confirm the
water, heat and mass balances for the ISR operation and process
plant. These efforts will provide valuable inputs to the EIA for
fresh water uses, atmospheric and noise sources, and waste streams.
The results of the study will also provide inputs for the site
layout submitted with the Project Environmental Impact Statement
(‘EIS’).
Environmental and Sustainability Activities
Environmental Impact Assessment
In June 2019
Denison announced that the Canadian Nuclear Safety Commission
(‘CNSC’) and the Saskatchewan Ministry of Environment
(‘SK MOE’) accepted the Provincial Technical Proposal
and Federal Project Description (the ‘Project
Description’) submitted by Denison for the ISR uranium mine
and processing plant proposed for Wheeler River. Accordingly,
Denison officially commenced the EIA process in accordance with the
requirements of both the Canadian Environmental Assessment Act,
2012 (Canada) (‘CEAA 2012’) and The Environmental
Assessment Act (Saskatchewan). During the third quarter, work
commenced with the initiation of various studies and assessments
which are intended to support the expected completion of the EIS in
2020.
On August 28,
2019, the Impact Assessment Act (‘IAA’) came into
force, replacing CEAA 2012. Denison, however, has received formal
notification from the CNSC that, due to transitional provisions
within the IAA, the Project EIA will remain subject to CEAA
2012.
Environmental Baseline Data Collection
Baseline work
completed during the third quarter of 2019 included ongoing
monitoring of ambient radon and dust in the air, groundwater
quality, and waste rock barrel leachate chemistry. In addition,
ambient gamma, sulphur dioxide and nitrogen dioxide monitoring
programs were initiated during the quarter, and aquatic,
terrestrial and heritage baseline surveys were conducted to build
upon the work completed to date, improve Denison’s
understanding of the existing environment around the Wheeler River
Project area, and support the completion of the EIA.
During the
quarter, 12 regional observation wells were also installed for the
purpose of regional hydrogeological testing outside of the Phoenix
deposit. The wells will be used to establish baseline conditions
within the local and regional groundwater system and the data
collected (including groundwater levels, flow and quality) will
form key inputs to groundwater models for the EIA.
Corporate Social Responsibility
During the third
quarter of 2019, Denison continued its efforts to strengthen
relationships with the Indigenous communities that form the Wheeler
River Partner communities – those communities with whom
Denison has entered into a memorandum of understanding
(‘MOU’) in support of the advancement of the project.
In addition to various community engagement activities carried out
during the quarter, Denison conducted two site tours for the
Indigenous and municipal leaders of the Wheeler River Partner
communities, which introduced the leaders to the site, provided an
overview of the summer field testing activities, and offered an
opportunity for collaboration regarding the advancement of the
Project.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Exploration Program
Denison’s
share of exploration costs at Wheeler River were $693,000 and
$2,467,000 during the three and nine months ended September 30,
2019, respectively (September 30, 2018 – $2,058,000 and
$6,619,000). 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 2019 exploration drilling
program was focused on initial testing of regional targets at the
sub-Athabasca unconformity, with the potential to discover
additional high-grade deposits which could form satellite ISR
operations.
During the summer
2019 exploration program, conducted during the third quarter, a
total of 3,139 metres of diamond drilling was undertaken in six
completed holes. The drill hole locations are provided in the
figure below. The summer program was focused on testing for
unconformity-hosted uranium mineralization along the K-West
conductive trend, where previous drilling had returned encouraging
uranium and base metal sulphide intercepts with other geological
features commonly associated with unconformity-related uranium
deposits. The summer drill holes were undertaken as a follow-up to
the winter 2019 program along the southern portion of the K-West
trend and designed to follow-up certain targets on existing drill
sections, and to test along strike of previous drill holes. The
results from the winter 2019 program are summarized in
Denison’s 2019 First Quarter Report.
In summary, the
six drill holes completed during the third quarter all intersected
favorable hydrothermal alteration within the basal sandstone
associated with the K-West graphitic fault, including bleaching,
desilification, and grey alteration. Three drill holes (WR-756D1,
WR-756D2 and WR753D1) were completed as a wedge (or daughter) hole
from existing drill holes, to follow-up on results from the winter
2019 exploration program. These drill holes intersected strong
alteration associated with highly anomalous geochemistry,
highlighted by WR-756D1 which averaged 3 parts per million uranium
(partial digest) over the basal 230 metres of sandstone, indicative
of a potentially fertile uranium mineralizing system along the
K-West trend. Somewhat weaker geochemical results were returned
from the other three holes completed (WR759, WR-760, WR761A) along
strike of the winter 2019 drill holes on an approximate 300 metre
spacing. The drill holes completed along strike are, however,
interpreted to have undershot the optimal target by 45 to 65
metres. Accordingly, additional exploration along the K-West trend
is warranted, particularly along the northern portion (west and
northwest of the Gryphon deposit), where the strongest geochemical
anomalism along the K-West trend occurs and unconformity targets
are largely untested.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The map below
provides a summary of drill results for K-West.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Exploration Pipeline Properties
During the third
quarter, no field work was carried out on Denison’s
exploration pipeline properties. Numerous desk-top reviews were
completed to prioritize properties for potential future
exploration. The Company continues to review, prioritize and
rationalize its Athabasca Basin exploration portfolio with the
planned objective of continuing to explore its highest priority
projects with the potential to deliver significant and meaningful
new discoveries.
GENERAL AND ADMINISTRATIVE EXPENSES
During the three
and nine months ended September 30, 2019, total general and
administrative expenses were $1,657,000 and $5,688,000,
respectively (September 30, 2018 - $1,657,000 and $5,378,000).
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 increase in general and
administrative expenses during the nine months ended September 30,
2019, as compared to the prior period, was predominantly the result
of an increase in share-based compensation expense related to
vesting of the Company’s initial grants of restricted share
units (‘RSUs’) and performance share units
(‘PSUs’) issued in the second quarter of fiscal 2018,
an increase in employee salaries and benefits, as well as an
increase in non-recurring legal costs, offset by a legal recovery
received during the second quarter of 2019.
OTHER INCOME AND EXPENSES
During the three
and nine months ended September 30, 2019, the Company recognized
losses of $928,000 and $1,456,000 in other income/expense,
respectively (September 30, 2018 – a gain of $664,000 and a
loss of $2,654,000). The losses in the three and nine months ended
September 30, 2019 are predominantly due to losses on investments
carried at fair value of $825,000 and $1,172,000, respectively
(September 30, 2018 – gain of $654,000 and loss of
$2,521,000). Gains and losses on investments carried at fair value
are driven by the closing share price of the related investee at
the end of the quarter. The losses in the three months ended
September 30, 2019, were mainly due to unfavourable mark-to-market
adjustments on the Company’s investments in common shares of
Skyharbour Resources Ltd. (‘Skyharbour’). The losses in
the nine months ended September 30, 2019, were mainly due to
unfavourable mark-to-market adjustments on the Company’s
investments in common shares of Skyharbour as well as the write off
of the Company’s investments in common share purchase
warrants of GoviEx Uranium Inc. (‘GoviEx’), which
expired unexercised in the second quarter.
EQUITY SHARE OF LOSS FROM ASSOCIATES
During the three
and nine months ended September 30, 2019, the Company recognized
losses of $220,000 and $426,000 from its equity share of its
associate GoviEx (September 30, 2018 – gains of $639,000 and
$429,000). The loss in the three months ended September 30, 2019 is
primarily due to an equity loss of $218,000 (September 30, 2018
– equity gain of $567,000 and dilution gain of $72,000). The
loss during the nine months ended September 30, 2019 is due to an
equity loss of $678,000, offset by a dilution gain of $252,000
(September 30, 2018 – equity loss of $247,000, more than
offset by a dilution gain of $676,000). The equity gains or losses
in each period is based on the Company’s share of
GoviEx’s net income or loss during the periods in question.
The dilution gains and losses are the result of equity issuances
completed by GoviEx, which reduced the Company’s ownership
position in GoviEx from 16.21% at December 31, 2018 (18.72% at
December 31, 2017), to 15.39% at September 30, 2019. The Company
records its share of income or loss 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash
equivalents were $10,432,000 at September 30, 2019 (December 31,
2018 – $23,207,000).
The decrease in
cash and cash equivalents of $12,775,000 since December 31, 2018
was due to net cash used in operations of $12,155,000 and net cash
used in investing activities of $859,000, offset by net cash
provided by financing activities of $239,000.
Net cash used in
operating activities of $12,155,000 was predominantly due to the
net loss for the period, adjusted for non-cash items and changes in
working capital items.
Net cash used in
investing activities of $859,000 consists primarily of expenditures
for property, plant and equipment, as well as the purchase of other
portfolio investments.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Net cash provided
by financing activities of $239,000 relates primarily to the cash
received upon the exercise of employee stock options, offset by
cash payments related to the Company’s lease
obligations.
As at September
30, 2019, the Company has satisfied its obligation to spend
$5,000,000 on eligible Canadian exploration expenditures under the
flow-through share financing completed in November
2018.
Refer to the
OUTLOOK for 2019 section below for details of the Company’s
working capital requirements for the remainder of
2019.
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) were
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.
Going Concern Assumption
At September 30,
2019, the Company does not have sufficient liquidity on hand to
meet all its obligations over the next 12 months as they become
due. In order to both fund operations and maintain rights under
existing agreements, the Company must secure additional future
funding. The Company is actively pursuing access to different
sources of funding and while it has been successful in the past in
obtaining financing for its activities, there is no assurance that
it will be able to obtain adequate financing in the future. These
events and conditions indicate the existence of material
uncertainties that may cast significant doubt as to the
Company’s ability to continue as a going
concern.
TRANSACTIONS WITH RELATED PARTIES
Uranium Participation Corporation
The previous
management services agreement with UPC expired on March 31, 2019.
Effective April 1, 2019, a new management services agreement
(‘MSA’) was entered into for a term of five years (the
‘Term’). Under the MSA, Denison continues to receive
the following management fees from UPC, unchanged from the previous
agreement: 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 U3O8 or UF6); and d) a
commission of 1.0% of the gross value of any purchases or sales of
U3O8 or UF6 or gross interest
fees payable to UPC in connection with any uranium loan
arrangements.
The MSA may be
terminated during the Term by Denison upon the provision of 180
days written notice. The MSA may be terminated during the Term by
UPC (i) in the event of a material breach, (ii) within 90 days of
certain events surrounding a change of both of the individuals
serving as Chief Executive Officer and Chief Financial Officer of
UPC, and / or a change of control of Denison, or (iii) upon the
provision of 30 days written notice and, subject to certain
exceptions, a cash payment to Denison of an amount equal to the
base and variable management fees that would otherwise be payable
to Denison (calculated based on UPC’s current uranium
holdings at the time of termination) for the lesser period of a)
three years, or b) the remaining term of the MSA.
The following
amounts were earned from UPC for the periods ended:
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
(in
thousands)
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Base and variable
fees
|
|
|
|
$
|
453
|
$
|
481
|
$
|
1,374
|
$
|
1,250
|
Discretionary
fees
|
|
|
|
|
-
|
|
-
|
|
-
|
|
50
|
Commission
fees
|
|
|
|
|
107
|
|
128
|
|
110
|
|
223
|
|
|
|
|
$
|
560
|
$
|
609
|
$
|
1,484
|
$
|
1,523
|
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
At September 30,
2019, accounts receivable includes $356,000 (December 31, 2018
– $303,000) due from UPC with respect to the fees and
transactions discussed above.
Korea Electric Power Corporation (‘KEPCO’) and Korea
Hydro & Nuclear Power (‘KHNP’)
As at September
30, 2019, KEPCO, through its subsidiaries, holds 58,284,000 shares
of Denison representing a share interest of approximately 9.87%.
KHNP Canada Energy Ltd., a subsidiary of KEPCO’s subsidiary
KHNP, is the holder of the majority of Denison’s shares and
is also the majority member of 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.
KWULP has elected
not to fund their share of the 2019 spending program and will
dilute their interest in the property. In May 2019, Denison funded
a portion of the approved fiscal 2019 program for Waterbury Lake
which resulted in the further dilution of KWULP’s interest in
the WLULP. As a result, Denison earned an additional 0.59% interest
in the WLULP, increasing Denison’s interest to 66.51% from
65.92%. The additional interest has been accounted for using an
effective date of May 31, 2019 and has 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 $409,000.
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:
●
The Company provided a loan
of $250,000 to GoviEx in late 2018. The loan was unsecured and bore
interest at 7.5% per annum. In April 2019, the loan was repaid in
full, together with the interest thereon.
●
During the three and nine
months ended September 30, 2019, the Company incurred investor
relations, administrative service fees and other expenses of
$114,000 and $199,000, respectively (September 30, 2018 –
$8,000 and $100,000) 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 September
30, 2019, an amount of $nil (December 31, 2018 – $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:
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
September
30,
|
|
September
30,
|
(in
thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Salaries and
short-term employee benefits
|
$
|
(407)
|
$
|
(422)
|
$
|
(1,536)
|
$
|
(1,275)
|
Share-based
compensation
|
|
(384)
|
|
(385)
|
|
(1,499)
|
|
(1,107)
|
Termination
benefits
|
|
-
|
|
-
|
|
(481)
|
|
-
|
|
$
|
(791)
|
$
|
(807)
|
$
|
(3,516)
|
$
|
(2,382)
|
OFF-BALANCE SHEET ARRANGEMENTS
The Company does
not have any off-balance sheet arrangements.
SUBSEQUENT EVENTS
The collective
agreement between Orano and unionized employees at the McClean Lake
mill expired on May 31, 2019. On October 15, 2019, the parties
applied for conciliation, after a tentative agreement was not
ratified by unionized employees. The conciliation period will run
for 60 days and, if an agreement is not reached, can be extended by
mutual consent. If not extended, there is a 21-day cooling-off
period prior to either party acquiring the legal right to undertake
a work stoppage.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Work continues
under the terms of the expired collective agreement during
conciliation. If Orano is unable to reach an agreement and there is
a work stoppage, processing of CLJV ore at the McClean Lake mill in
2020 may be impacted. A work stoppage at the McClean Lake mill will
have no impact on Denison’s cashflow, as all toll milling
revenues are paid to APG, as a result of the APG Arrangement.
However, should processing of CLJV ore be interrupted, the Company
will stop drawing down on the deferred revenue balance until such
time as CLJV ore processing restarts.
OUTSTANDING SHARE DATA
At November 7,
2019, there were 590,225,391 common shares issued and outstanding,
stock options outstanding for 13,733,743 Denison common shares,
4,894,099 share units, and 1,673,077 share purchase warrants
outstanding for a total of 610,526,310 common shares on a
fully-diluted basis.
OUTLOOK FOR 2019
Refer
to the Company’s annual MD&A for the year ended December
31, 2018 for a detailed discussion of the previously disclosed 2019
budget. During the third quarter, the Company increased its 2019
outlook for mineral property exploration and evaluation expense by
$990,000. The increase is related to higher than anticipated
evaluation program costs for the 2019 Wheeler River ISR field test
program, and an increase in CNSC fees for 2019, which are largely
connected to the EIA approval process. The Company has also
increased its outlook for development and operations by $250,000,
predominantly due to an increase in cost estimates related to the
advancement of the SABRE mining method within the MLJV. The
remainder of the 2019 outlook remains unchanged from the previously
disclosed 2019 outlook.
(in
thousands)
|
|
PREVIOUS 2019 OUTLOOK(1)
|
CURRENT 2019 OUTLOOK
|
Actual to
September 30, 2019(3)
|
Canada Mining Segment
|
|
|
|
|
Mineral
Sales
|
|
970
|
970
|
-
|
Development &
Operations
|
|
(3,640)
|
(3,890)
|
(1,750)
|
Mineral Property
Exploration & Evaluation
|
|
(14,630)
|
(15,620)
|
(12,299)
|
|
|
(17,300)
|
(18,540)
|
(14,049)
|
DES Segment
|
|
|
|
|
DES Environmental
Services
|
|
630
|
630
|
461
|
|
|
630
|
630
|
461
|
Corporate and Other Segment
|
|
|
|
|
UPC Management
Services
|
|
1,920
|
1,920
|
1,484
|
Corporate
Administration & Other
|
|
(5,170)
|
(5,170)
|
(3,723)
|
|
|
(3,250)
|
(3,250)
|
(2,239)
|
Total(2)
|
|
$ (19,920)
|
$ (21,160)
|
$ (15,827)
|
Notes:
1.
Previous Outlook as reported
in the Company’s June 30, 2019 MD&A.
2.
Only material operations
shown.
3.
The budget is prepared on a
cash basis.
ADDITIONAL INFORMATION
SIGNIFICANT ACCOUNTING POLICIES
The Company has
changed its accounting policies in its audited annual consolidated
financial statements for the year ended December 31, 2018 for
‘Leases.’ On January 1, 2019, Denison adopted the
provisions of IFRS 16 Leases (‘IFRS 16’) using the
modified retrospective approach. As such, comparative information
has not been restated and continues to be reported under
International Accounting Standard 17 Leases (‘IAS 17’)
and International Financial Reporting Interpretation Committee 4
Determining Whether an Arrangement Contains a Lease (‘IFRIC
4’).
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Denison’s
new accounting policy for leases is as follows:
At the inception
of a contract, the Company assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an
identified asset, the Company assesses whether:
●
the contract involves the use
of an identified asset – this may be specified explicitly or
implicitly and should be physically distinct or represent
substantially all of the capacity of a physically distinct asset.
If the supplier has a substantive substitution right, then the
asset is not identified;
●
the Company has the right to
obtain substantially all of the economic benefits from the use of
the asset throughout the period of use; and
●
the Company has the right to
direct the use of the asset. The Company has this right when it has
the decision-making rights that are most relevant to changing how
and for what purpose the asset is used. In rare cases where the
decision about how and for what purpose the asset is used is
predetermined, the Company has the right to direct the use of the
asset if either: (a) the Company has the right to operate the
asset; or (b) the Company designed the asset in a way that
predetermines how and for what purpose it will be
used.
If the contract
contains a lease, a right-of-use asset and a corresponding lease
liability are set-up at the date at which the leased asset is
available for use by the Company. The lease payments are discounted
using either the interest rate implicit in the lease, if available,
or the Company’s incremental borrowing rate. Each lease
payment is allocated between the liability and the finance cost
(i.e. accretion) so as to produce a constant rate of interest on
the remaining lease liability balance. The Company accounts for the
lease and non-lease components separately. The right-of-use asset
is depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis.
QUALIFIED PERSON
The disclosure of
scientific and technical information regarding Denison’s
properties in the MD&A was prepared or reviewed and approved 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.
ASSAY PROCEDURES AND DATA VERIFICATION
The Company
reports preliminary radiometric equivalent grades
(‘eU3O8’), derived
from a calibrated down-hole total gamma probe, during or upon
completion of its exploration programs and subsequently reports
definitive U3O8 assay grades
following sampling and chemical analysis of the mineralized drill
core. Uranium assays are performed on split core samples by the
Saskatchewan Research Council (‘SRC’) Geoanalytical
Laboratories using an ISO/IEC 17025:2005 accredited method for the
determination of U3O8 weight %. Sample
preparation involves crushing and pulverizing core samples to 90%
passing -106 microns. The resultant pulp is digested using
aqua-regia and the solution analyzed for U3O8 weight % using
ICP-OES. Geochemical results from composite core samples are
reported as parts per million (‘ppm’) obtained from a
partial HNO3:HCl digest with
an ICP-MS finish. Boron values are obtained through NaO2/NaCO3 fusion followed
by an ICP-OES finish. All data are subject to verification
procedures by qualified persons employed by Denison prior to
disclosure. For further details on Denison’s sampling,
analysis, quality assurance program and quality control measures
and data verification procedures please see Denison's Annual
Information Form dated March 12, 2019 available on the
Company’s website and filed under the Company's profile on
SEDAR (www.sedar.com)
and in 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 projections made in the 2019 Outlook; the
benefits to be derived from corporate transactions; the estimates
of Denison's mineral reserves and mineral
resources;
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
exploration,
development and
expansion plans and objectives, including the results of, and
estimates and assumptions within, the PFS, statements regarding a
FS 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
12, 2019 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.
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.
23