ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2020
|
ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
|
Responsibility for Financial Statements
The
Company’s management is responsible for the integrity and
fairness of presentation of these consolidated financial
statements. The consolidated financial statements have been
prepared by management, in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board, for review by the Audit Committee and approval by
the Board of Directors.
The preparation
of financial statements requires the selection of appropriate
accounting policies in accordance with International Financial
Reporting Standards and the use of estimates and judgements by
management to present fairly and consistently the consolidated
financial position of the Company. Estimates are necessary when
transactions affecting the current period cannot be finalized with
certainty until future information becomes available. In making
certain material estimates, the Company’s management has
relied on the judgement of independent specialists.
The
Company’s management has developed and maintains a system of
internal accounting controls to ensure, on a reasonable and
cost-effective basis, that the financial information is timely
reported and is accurate and reliable in all material respects and
that the Company’s assets are appropriately accounted for and
adequately safeguarded.
The consolidated
financial statements have been audited by KPMG LLP, our independent
auditor. Its report outlines the scope of its examination and
expresses its opinions on the consolidated financial statements and
internal control over financial reporting.
/s/ “David
D.Cates”
/s/ “Gabriel (Mac)
McDonald”
David D.
Cates
Gabriel (Mac)
McDonald
President and Chief Executive
Officer
Vice-President Finance and
Chief Financial Officer
March 4,
2021
Management’s Report on Internal Control over Financial
Reporting
The
Company’s management is responsible for establishing and
maintaining an adequate system of internal control over financial
reporting. Management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the
Internal Control –
Integrated Framework, 2013 issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Company’s internal
control over financial reporting was effective as of December 31,
2020.
The effectiveness
of the Company’s internal control over financial reporting as
at December 31, 2020 has been audited by KPMG LLP, our independent
auditor, as stated in its report which appears herein.
Changes
to Internal Control over Financial Reporting
There has not
been any change in the Company’s internal control over
financial reporting that occurred during 2020 that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over financial
reporting.
|
KPMG
LLP
Bay Adelaide
Centre
333 Bay Street,
Suite 4600
Toronto, ON M5H
2S5
CanadaTel
416-777-8500
Fax
416-777-8818
|
Report of Independent Registered Public Accounting
Firm
To the
Shareholders and Board of Directors of Denison Mines
Corp.:
Opinion on the Consolidated Financial Statements
We have audited
the accompanying consolidated statement of financial position of
Denison Mines Corp. (the Company) as of December 31, 2020, the
related consolidated statements of income (loss) and comprehensive
income (loss), changes in equity, and cash flows for the year then
ended, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and its
financial performance and its cash flows for the year then ended,
in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards
Board.
We also have
audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of
December 31, 2020, based on criteria established in
Internal Control –
Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report
dated March 4, 2021 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over
financial reporting.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our
audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error
or fraud. Our audit included performing procedures to assess
therisks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audit
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We
believe that our audit provides a reasonable basis for our
opinion.
KPMG LLP is a
Canadian limited liability partnership and a member firm of the
KPMG network of independent
member firms affiliated with KPMG
International Cooperative (“KPMG International”), a
Swiss entity.
KPMG Canada
provides services to KPMG LLP.
Critical Audit Matter
The critical
audit matter communicated below is a matter arising from the
current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Evaluation of indicators of impairment for mineral
properties
As discussed in
note 2H. to the consolidated financial statements, a mineral
property is assessed at the end of each reporting period to
determine if there is any indication that mineral property may be
impaired. A mineral property is tested for impairment using the
impairment indicators under IFRS 6 - Exploration for and evaluation
of mineral resources up until the commercial and technical
feasibility for the property is established. As discussed in Note
10 to the consolidated financial statements, the Company’s
mineral properties balance as of December 31, 2020 was $179,743
thousand.
We identified the
evaluation of indicators of impairment for mineral properties as a
critical audit matter. Assessing the Company’s determination
of whether various internal and external factors, individually or
in the aggregate, result in an impairment indicator involves the
application of a higher degree of auditor judgment. Specifically,
judgment is required to evaluate the facts and circumstances
related to the Company’s mineral properties, including
assessing the Company’s future plans for each property and
exploration results.
The following are
the primary procedures we performed to address this critical audit
matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Company’s
impairment indicator assessment process, including controls related
to the Company’s impairment indicator review for each
property. We assessed the Company’s future plans by comparing
them to the most recent exploration program and budget approved by
the Board of Directors and evaluating the time period remaining for
the Company’s right to explore them by inspecting
governmental filings. We evaluated the Company’s exploration
results by comparing them to relevant technical
reports.
/s/ KPMG LLP
Chartered
Professional Accountants, Licensed Public Accountants
We have served as
the Company’s auditor since 2020.
Toronto,
Canada
March 4,
2021
|
KPMG
LLP
Bay
Adelaide Centre
333
Bay Street, Suite 4600
Toronto, ON M5H
2S5
CanadaTel
416-777-8500
Fax
416-777-8818
|
Report of Independent Registered Public Accounting
Firm
To the
Shareholders and Board of Directors Denison Mines
Corp.:
Opinion on Internal Control Over Financial Reporting
We have audited
Denison Mines Corp.’s (the Company) internal control over
financial reporting as of December 31, 2020, based on the
criteria established in Internal
Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2020, based on the criteria established in
Internal Control –
Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have
audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) (PCAOB), the
consolidated statement of financial position of the Company as of
December 31, 2020, the related consolidated statements of
income (loss) and comprehensive income (loss), changes in equity,
and cash flows for the year then ended, and the related notes
(collectively, the consolidated financial statements), and our
report dated March 4, 2021 expressed an unqualified opinion on
those consolidated financial statements.
Basis for Opinion
The
Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our
audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
KPMG LLP is a
Canadian limited liability partnership and a member firm of the
KPMG network of independent
member firms affiliated with KPMG
International Cooperative (“KPMG International”), a
Swiss entity.
KPMG Canada
provides services to KPMG LLP.
Definition and Limitations of Internal Control Over Financial
Reporting
A company’s
internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on
the financial statements.
Because of its
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ KPMG LLP
Chartered
Professional Accountants, Licensed Public Accountants
Toronto,
Canada
March 4,
2021
Report of
Independent Registered Public Accounting Firm
To the Board of
Directors and Shareholders of Denison Mines Corp.
Opinion on the Financial Statements
We have audited
the accompanying consolidated statements of financial position of
Denison Mines Corp. and its subsidiaries (together, the Company) as
of December 31, 2019, and the related consolidated statement of
income (loss) and comprehensive income (loss), changes in equity
and cash flow for the year then ended, including the related notes
(collectively referred to as the consolidated financial
statements).
In our opinion,
the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the
Company as of December 31, 2019, and its financial performance and
its cash flows for the year then ended in conformity with
International Financial Reporting Standards as issued by the
International Accounting Standards Board.
Substantial
Doubt About the Company’s Ability to Continue as a Going
Concern
The accompanying
consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note
2 (not presented herein) to the consolidated financial statements,
appearing in Exhibit 99.3 of Company’s annual report on Form
40-F for the year ended December 31, 2019, the Company has suffered
recurring losses from operations and negative cash outflows from
operating activities that raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard
to these matters are also described. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
The
Company’s management is responsible for the consolidated
financial statements. Our responsibility is to express opinions on
the Company’s consolidated financial statements based on our
audit. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our
audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error
or fraud.
Our audit of the
consolidated financial statements included performing procedures to
assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audit
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. Our
audit also
PricewaterhouseCoopers
LLP
PwC
Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J
0B2
T: +1 416
863 1133, F: +1 416 365 8215
"PwC”
refers to PricewaterhouseCoopers LLP, an Ontario limited liability
partnership.
included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Chartered
Professional Accountants, Licensed Public Accountants Toronto,
Canada
March 5,
2020
We served as the
Company’s auditor from at least 1996 to 2020. We were not
able to determine the specific year we began serving as auditor of
the Company.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
(Expressed in thousands of
Canadian dollars (“CAD”) except for share
amounts)
|
|
|
|
ASSETS
|
|
|
Current
|
|
|
Cash and cash equivalents
(note 4)
|
$24,992
|
$8,190
|
Trade and other receivables
(note 5)
|
3,374
|
4,023
|
Inventories (note
6)
|
3,015
|
3,352
|
Investments (note
7)
|
16,657
|
-
|
Prepaid expenses and
other
|
1,373
|
978
|
|
49,411
|
16,543
|
Non-Current
|
|
|
Inventories-ore in stockpiles
(note 6)
|
2,098
|
2,098
|
Investments (note
7)
|
293
|
12,104
|
Restricted cash and
investments (note 9)
|
12,018
|
11,994
|
Property, plant and equipment
(note 10)
|
256,870
|
257,259
|
Total
assets
|
$320,690
|
$299,998
|
|
|
|
LIABILITIES
|
|
|
Current
|
|
|
Accounts payable and accrued
liabilities
|
$7,178
|
$7,930
|
Current portion of long-term
liabilities:
|
|
|
Deferred revenue (note
11)
|
3,478
|
4,580
|
Post-employment benefits
(note 12)
|
120
|
150
|
Reclamation obligations (note
13)
|
802
|
914
|
Other liabilities (note
14)
|
262
|
1,372
|
|
11,840
|
14,946
|
Non-Current
|
|
|
Deferred revenue (note
11)
|
33,139
|
31,741
|
Post-employment benefits
(note 12)
|
1,241
|
2,108
|
Reclamation obligations (note
13)
|
37,618
|
31,598
|
Other liabilities (note
14)
|
375
|
532
|
Deferred income tax liability
(note 15)
|
9,192
|
8,924
|
Total
liabilities
|
93,405
|
89,849
|
|
|
|
EQUITY
|
|
|
Share capital (note
16)
|
1,366,710
|
1,335,467
|
Share purchase warrants (note
17)
|
-
|
435
|
Contributed
surplus
|
67,387
|
65,417
|
Deficit
|
(1,208,587)
|
(1,192,304)
|
Accumulated other
comprehensive income (note 19)
|
1,775
|
1,134
|
Total
equity
|
227,285
|
210,149
|
Total
liabilities and equity
|
$320,690
|
$299,998
|
|
|
|
Issued and outstanding common
shares (note 16)
|
678,981,882
|
597,192,153
|
Commitments
and contingencies (note 24)
|
|
|
Subsequent
events (note 26)
|
|
|
The accompanying
notes are an integral part of the consolidated financial
statements
On behalf of the Board of
Directors:
|
|
Catherine J.G. Stefan
Director
|
Brian D. Edgar
Director
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated Statements of Income (Loss)
and
Comprehensive
Income (Loss)
|
|
|
(Expressed in thousands of
CAD dollars except for share and per share amounts)
|
|
|
|
|
|
|
|
|
REVENUES (note 21)
|
$14,423
|
$15,549
|
|
|
|
EXPENSES
|
|
|
Operating expenses (note 20,
21)
|
(10,594)
|
(14,436)
|
Exploration and evaluation
(note 21)
|
(9,032)
|
(15,238)
|
General and administrative
(note 21)
|
(7,609)
|
(7,811)
|
Other income (expense) (note
20)
|
(95)
|
2,970
|
|
(27,330)
|
(34,515)
|
Loss before
net finance expense, equity accounting
|
(12,907)
|
(18,966)
|
|
|
|
Finance expense, net (note
20)
|
(4,236)
|
(4,125)
|
Equity share of loss of
associate (note 8)
|
-
|
(426)
|
Loss
before taxes
|
(17,143)
|
(23,517)
|
Income tax recovery (note
15):
|
|
|
Deferred
|
860
|
5,376
|
Net
loss for the period
|
$(16,283)
|
$(18,141)
|
|
|
|
Other comprehensive income
(loss) (note 19):
|
|
|
Items that may be
reclassified to loss:
|
|
|
Unamortized experience gain
– post employment liability
|
638
|
-
|
Foreign currency translation
change
|
3
|
7
|
Comprehensive loss for the
period
|
$(15,642)
|
$(18,134)
|
|
|
|
|
|
|
Basic and diluted net loss
per share
|
$(0.03)
|
$(0.03)
|
|
|
|
|
|
|
Weighted-average number of
shares outstanding (in thousands):
|
|
|
Basic and
diluted
|
628,441
|
590,343
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated
Statements of Changes in Equity
|
|
|
(Expressed in thousands of
CAD dollars)
|
|
|
|
|
|
Share
capital (note 16)
|
|
|
Balance-beginning of
period
|
$1,335,467
|
$1,331,214
|
Shares issued for cash, net
of issue costs
|
30,825
|
4,292
|
Flow-through share
premium
|
(22)
|
(902)
|
Shares issued on acquisition
of additional mineral property interests (note 10)
|
-
|
19
|
Share options
exercised-cash
|
148
|
405
|
Share options exercised-fair
value adjustment
|
50
|
140
|
Share units exercised-fair
value adjustment
|
242
|
299
|
Balance-end of
period
|
1,366,710
|
1,335,467
|
|
|
|
Share
purchase warrants (note 17)
|
|
|
Balance-beginning of
period
|
435
|
435
|
Share purchase warrants
expired
|
(435)
|
-
|
Balance-end of
period
|
-
|
435
|
|
|
|
Contributed
surplus
|
|
|
Balance-beginning of
period
|
65,417
|
63,634
|
Share-based compensation
expense (note 18)
|
1,827
|
2,222
|
Share options exercised-fair
value adjustment
|
(50)
|
(140)
|
Share units exercised-fair
value adjustment
|
(242)
|
(299)
|
Share warrants
expired
|
435
|
-
|
Balance-end of
period
|
67,387
|
65,417
|
|
|
|
Deficit
|
|
|
Balance-beginning of
period
|
(1,192,304)
|
(1,174,163)
|
Net
loss
|
(16,283)
|
(18,141)
|
Balance-end of
period
|
(1,208,587)
|
(1,192,304)
|
|
|
|
Accumulated
other comprehensive income (note 19)
|
|
|
Balance-beginning of
period
|
1,134
|
1,127
|
Unamortized experience gain
– post employment liability
|
638
|
-
|
Foreign currency
translation
|
3
|
7
|
Balance-end of
period
|
1,775
|
1,134
|
|
|
|
Total
Equity
|
|
|
Balance-beginning of
period
|
$210,149
|
$222,247
|
Balance-end of
period
|
$227,285
|
$210,149
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated
Statements of Cash Flow
|
|
|
(Expressed in thousands of
CAD dollars)
|
|
|
CASH
PROVIDED BY (USED IN):
|
|
|
OPERATING
ACTIVITIES
|
|
|
Net loss for the
period
|
$(16,283)
|
$(18,141)
|
Items not affecting cash and
cash equivalents:
|
|
|
Depletion, depreciation,
amortization and accretion
|
7,145
|
8,711
|
Share-based compensation
(note 18)
|
1,827
|
2,222
|
Recognition of deferred
revenue (note 11)
|
(2,762)
|
(4,609)
|
Losses on reclamation
obligation revisions (note 13)
|
3,595
|
845
|
Gains on debt obligation
revisions (note 14)
|
(2)
|
(26)
|
Losses (gains) on property,
plant and equipment disposals (note 20)
|
(405)
|
37
|
Losses (gains) on investments
(note 20)
|
(5,046)
|
1,085
|
Equity loss of associate
(note 8)
|
-
|
678
|
Dilution gain of associate
(note 8)
|
-
|
(252)
|
Gain
on deconsolidation of associate
|
-
|
(5,267)
|
Foreign exchange losses
(gains) (note 20)
|
529
|
(2)
|
Deferred income tax recovery
(note 15)
|
(860)
|
(5,376)
|
Post-employment benefits
(note 12)
|
(90)
|
(107)
|
Reclamation obligations (note
13)
|
(826)
|
(855)
|
Change in non-cash working
capital items (note 20)
|
(307)
|
2,256
|
Net cash used
in operating activities
|
(13,485)
|
(18,801)
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
Decrease in loans receivable
(note 23)
|
-
|
250
|
Sale of investments (note
7)
|
477
|
-
|
Purchase of investments (note
7)
|
(7)
|
(511)
|
Expenditures on property,
plant and equipment (note 10)
|
(278)
|
(929)
|
Proceeds on sale of property,
plant and equipment
|
137
|
8
|
Decrease (increase) in
restricted cash and investments
|
(24)
|
261
|
Net cash
provided by (used in) investing activities
|
305
|
(921)
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
Issuance of debt obligations
(note 14)
|
-
|
670
|
Repayment of
debt obligations (note 14)
|
(467)
|
(662)
|
Issuance of
common shares for:
|
|
|
New share
issues-net of issue costs (note 16)
|
30,825
|
4,292
|
Share options
exercise proceeds (note 16)
|
148
|
405
|
Net cash
provided by financing activities
|
30,506
|
4,705
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
17,326
|
(15,017)
|
Foreign
exchange effect on cash and cash equivalents
|
(524)
|
-
|
Cash and cash
equivalents, beginning of period
|
8,190
|
23,207
|
Cash and cash
equivalents, end of period
|
$24,992
|
$8,190
|
Supplemental cash
flow disclosure (note 20)
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Notes to the consolidated financial statements for the years ended
December 31, 2020 and 2019
|
(Expressed in CAD
dollars except for shares and per share amounts)
|
|
Denison Mines
Corp. (“DMC”) and its subsidiary companies and joint
operations (collectively, “Denison” or the
“Company”) are engaged in uranium mining related
activities, which can include acquisition, exploration and
development of uranium properties, as well as the extraction,
processing and selling of uranium.
The Company has a
90.0% interest in the Wheeler River Joint Venture
(“WRJV”), a 66.90% interest in the Waterbury Lake
Uranium Limited Partnership (“WLULP”), a 22.5% interest
in the McClean Lake Joint Venture (“MLJV”) (which
includes the McClean Lake mill) and a 25.17% interest in the
Midwest Joint Venture (“MWJV”), each of which are
located in the eastern portion of the Athabasca Basin region in
northern Saskatchewan, Canada. The McClean Lake mill is contracted
to provide toll milling services to the Cigar Lake Joint Venture
(“CLJV”) under the terms of a toll milling agreement
between the parties (see note 11). 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 Closed Mines Group (formerly Denison Environmental
Services) and is also the manager of Uranium Participation
Corporation (“UPC”), a publicly-listed 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.
References to
“2020” and “2019” refer to the year ended
December 31, 2020 and the year ended December 31, 2019
respectively.
2.
STATEMENT
OF COMPLIANCE AND ACCOUNTING POLICIES
Statement
of Compliance
These
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting
Standards Board (“IASB”).
These financial
statements were approved by the board of directors for issue on
March 4, 2021.
Significant
accounting policies
These
consolidated financial statements are presented in Canadian dollars
(“CAD”) and all financial information is presented in
CAD, unless otherwise noted.
The preparation
of the consolidated financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amount of assets, liabilities, revenue and expenses. Actual results
may vary from these estimates.
Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 3.
The significant
accounting policies used in the preparation of these consolidated
financial statements are described below:
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
A.
Consolidation
principles
The financial
statements of the Company include the accounts of DMC, its
subsidiaries, its joint operations and its investments in
associates.
Subsidiaries
Subsidiaries are
all entities (including structured entities) over which the DMC
group of entities has control. The group controls an entity where
the group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the group and are deconsolidated from the date
that control ceases. Intercompany transactions, balances and
unrealized gains and losses from intercompany transactions are
eliminated.
Joint
Operations
Joint operations
are contractual arrangements which involve joint control between
the parties. In the mining industry, these arrangements govern the
formation, ownership and ongoing operation and management of
various mineral property interests contributed to the joint
operation. A joint operation may or may not be structured through a
separate financial vehicle. The consolidated financial statements
of the Company include its share of the assets in such joint
operations, together with its share of the liabilities, revenues
and expenses arising jointly or otherwise from those operations.
All such amounts are measured in accordance with the terms of each
arrangement.
Investments
in associates
An associate is
an entity over which the Company has significant influence and is
neither a subsidiary, nor an interest in a joint operation.
Significant influence is the ability to participate in the
financial and operating policy decisions of the entity without
having control or joint control over those policies.
Associates are
accounted for using the equity method. Under this method, the
investment in associates is initially recorded at cost and adjusted
thereafter to record the Company’s share of post-acquisition
earnings or loss of the associate as if the associate had been
consolidated. The carrying value of the investment is also
increased or decreased to reflect the Company’s share of
capital transactions, including amounts recognized in other
comprehensive income, and for accounting changes that relate to
periods subsequent to the date of acquisition. Dilution gains or
losses arising from changes in the interest in investments in
associates are recognized in the statement of income or
loss.
The Company
assesses at each period-end whether there is any objective evidence
that an investment in an associate is impaired. If impaired, the
carrying value of the Company's share of the underlying assets of
the associate is written down to its estimated recoverable amount,
being the higher of fair value less costs of disposal or value in
use, and charged to the statement of income or loss.
B.
Foreign
currency translation
Functional
and presentation currency
Items included in
the financial statements of each entity in the DMC group are
measured using the currency of the primary economic environment in
which the entity operates (“the functional currency”).
Primary and secondary indicators are used to determine the
functional currency. Primary indicators include the currency that
mainly influences sales prices, labour, material and other costs.
Secondary indicators include the currency in which funds from
financing activities are generated and in which receipts from
operating activities are usually retained. Typically, the local
currency has been determined to be the functional currency of
Denison’s entities.
The financial
statements of entities that have a functional currency different
from the presentation currency of DMC (“foreign
operations”) are translated into Canadian dollars as follows:
assets and liabilities-at the closing rate at the date of the
statement of financial position, and income and expenses-at the
average rate of the period (as this is considered a reasonable
approximation to actual rates). All resulting changes are
recognized in other comprehensive income or loss as cumulative
foreign currency translation adjustments.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
When the Company
disposes of its entire interest in a foreign operation, or loses
control, joint control, or significant influence over a foreign
operation, the foreign currency gains or losses accumulated in
other comprehensive income or loss related to the foreign operation
are recognized in the statement of income or loss as translational
foreign exchange gains or losses.
Transactions
and balances
Foreign currency
transactions are translated into an entity’s functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of foreign currency transactions and from the
translation at year-end exchange rates of monetary assets and
liabilities denominated in currencies other than an
operation’s functional currency are recognized in the
statement of income or loss as transactional foreign exchange gains
or losses.
C.
Cash and
cash equivalents
Cash and cash
equivalents include cash on hand, deposits held with banks, and
other short-term highly liquid investments with original maturities
of three months or less which are subject to an insignificant risk
of changes in value.
Financial assets
and financial liabilities are recognized when the Company becomes a
party to the contractual provisions of a financial instrument.
Financial assets are derecognized when the rights to receive cash
flows from the assets have expired or have been transferred and the
Company has transferred substantially all risks and rewards of
ownership. Financial liabilities are derecognized when the
obligations specified in the contract are discharged, cancelled or
expire.
At initial
recognition, the Company classifies its financial instruments in
the following categories:
Financial
assets and liabilities at fair value through profit or loss
(“FVTPL”)
A financial asset
is classified in this category if it is a derivative instrument, an
equity instrument for which the Company has not made the
irrevocable election to classify as fair value through other
comprehensive income (“FVTOCI”), or a debt instrument
that is not held within a business model whose objective includes
holding the financial assets in order to collect contractual cash
flows that are solely payments of principal and interest.
Derivative financial liabilities and contingent consideration
liabilities related to business combinations are also classified in
this category. Financial instruments in this category are
recognized initially and subsequently at fair value. Transaction
costs are expensed in the statement of income or loss. Gains and
losses arising from changes in fair value are presented in the
statement of income or loss – within other income (expense) -
in the period in which they arise.
Financial
assets at amortized cost
A financial asset
is classified in this category if it is a debt instrument and / or
other similar asset that is held within a business model whose
objective is to hold the asset in order to collect the contractual
cash flows (i.e. principal and interest). Financial assets in this
category are initially recognized at fair value plus transaction
costs and subsequently measured at amortized cost using the
effective interest method less a provision for impairment. Interest
income is recorded in the statement of income or loss through
finance income.
Financial
liabilities at amortized cost
All financial
liabilities that are not recorded as FVTPL are classified in this
category and are initially recognized less a discount (when
material) to reduce the financial liabilities to fair value and
less any directly attributable transaction costs. Subsequently,
financial liabilities are measured at amortized cost using the
effective interest method. Interest expense is recorded in the
statement of income or loss through finance expense.
Refer to the
“Fair Value of Financial Instruments” section of note
23 for the Company’s classification of its financial assets
and liabilities within the fair value hierarchy.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
E.
Impairment
of financial assets
At each reporting
date, the Company assesses the expected credit losses associated
with its financial assets that are not carried at FVTPL. Expected
credit losses are calculated based on the difference between the
contractual cash flows and the cash flows that the Company expects
to receive, discounted, where applicable, based on the
asset’s original effective interest rate.
For “Trade
and other receivables”, the Company calculates expected
credit losses based on historical credit loss experience, adjusted
for forward-looking factors specific to debtors and the economic
environment. In recording an impairment loss, the carrying amount
of the asset is reduced by this computed amount either directly or
indirectly through the use of an allowance account.
Expenditures,
including depreciation, depletion and amortization of production
assets, incurred in the mining and processing activities that will
result in future concentrate production are deferred and
accumulated as ore in stockpiles, in-process inventories and
concentrate inventories. These amounts are carried at the lower of
weighted average cost or net realizable value (“NRV”).
NRV is calculated as the estimated future concentrate price (net of
selling costs) less the estimated costs to complete production into
a saleable form.
Stockpiles are
comprised of coarse ore that has been extracted from the mine and
is available for further processing. Mining production costs are
added to the stockpile as incurred and removed from the stockpile
based upon the weighted average cost per tonne of ore produced from
mines considered to be in commercial production. The current
portion of ore in stockpiles represents the amount expected to be
processed in the next twelve months.
In-process and
concentrate inventories include the cost of the ore removed from
the stockpile, a pro-rata share of the amortization of the
associated mineral property, as well as production costs incurred
to process the ore into a saleable product. Processing costs
typically include labor, chemical reagents and directly
attributable mill overhead expenditures. Items are valued at
weighted average cost.
Materials and
other supplies held for use in the production of inventories are
carried at weighted average cost and are not written down below
that cost if the finished products in which they will be
incorporated are expected to be sold at or above cost. However,
when a decline in the price of concentrates indicates that the cost
of the finished products exceeds NRV, the materials are written
down to NRV. In such circumstances, the replacement cost of the
materials may be the best available measure of their net realizable
value.
G.
Property,
plant and equipment
Plant
and equipment
Plant and
equipment are recorded at acquisition or production cost and
carried net of depreciation and impairments. Cost includes
expenditures incurred by the Company that are directly attributable
to the acquisition of the asset. Subsequent costs are included in
the asset’s carrying amount or recognized as a separate
asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Company
and the cost can be measured reliably. The carrying amount of a
replaced asset is derecognized when replaced. Repairs and
maintenance costs are charged to the statement of income and loss
during the period in which they are incurred.
Depreciation is
calculated on a straight line or unit of production basis as
appropriate. Where a straight line methodology is used, the assets
are depreciated to their estimated residual value over an estimated
useful life which ranges from three to twenty years depending upon
the asset type. Where a unit of production methodology is used, the
assets are depreciated to their estimated residual value over the
useful life defined by management’s best estimate of
recoverable reserves and resources in the current estimated mine
plan. When assets are retired or sold, the resulting gains or
losses are reflected in the statement of income or loss as a
component of other income or expense. The Company allocates the
amount initially recognized in respect of an item of plant and
equipment to its significant parts and depreciates separately each
such part over its useful life. Residual values, methods of
depreciation and useful lives of the assets are reviewed at least
annually and adjusted if appropriate.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Where
straight-line depreciation is utilized, the range of useful lives
for various asset classes is generally as follows:
Buildings
|
15 - 20
years;
|
Production
machinery and equipment
|
5 - 7
years;
|
Other
|
3
– 5 years.
|
Mineral
property acquisition, exploration, evaluation and development
costs
Costs relating to
mineral and / or exploration rights acquired through a business
combination or asset acquisition are capitalized and reported as
part of “Property, plant and equipment”.
Exploration
expenditures are expensed as incurred.
Evaluation
expenditures are expensed as incurred, until an area of interest is
considered by management to be sufficiently advanced. Once this
determination is made, the area of interest is classified as an
“Advanced Evaluation Stage” mineral property, a
component of the Company’s mineral properties, and all
further non-exploration expenditures for the current and subsequent
periods are capitalized. These expenses can include further
evaluation expenditures such as mining method selection and
optimization, metallurgical sampling test work and costs to further
delineate the ore body to a higher confidence level.
Once commercial
viability and technical feasibility has been established for a
property, the property is classified as a “Development
Stage” mineral property, an impairment test is performed on
transition, and all further development costs are capitalized to
the asset. Further development costs include costs related to
constructing a mine, such as shaft sinking and access, lateral
development, drift development, engineering studies and
environmental permitting, infrastructure development and the costs
of maintaining the site until commercial production.
Such capital
costs represent the net expenditures incurred and capitalized as at
the balance sheet date and do not necessarily reflect present or
future values.
Once a
development stage mineral property goes into commercial production,
the property is classified as “Producing” and the
accumulated costs are amortized over the estimated recoverable
reserves and resources in the current mine plan using a unit of
production basis. Commercial production occurs when a property is
substantially complete and ready for its intended use.
Proceeds received
from the sale of an interest in a property are credited against the
carrying value of the property, with any difference recorded in the
statement of income or loss as a gain or loss on sale within other
income and expense.
Lease
assets (and lease obligations)
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, the Company accounts for the lease and non-lease
components separately. For the lease component, 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
right-of-use asset is depreciated over the shorter of the
asset’s useful life and the lease term on a straight-line
basis.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The lease
payments associated with the lease liability 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.
H.
Impairment
of non-financial assets
Property, plant
and equipment assets are assessed at the end of each reporting
period to determine if there is any indication that the asset may
be impaired. If any such indication exists, an estimate of the
recoverable amount of the asset is made. For the purpose of
measuring recoverable amounts, assets are grouped at the lowest
level, or cash generating unit (“CGU”), for which there
are separately identifiable cash inflows. The recoverable amount is
the higher of an asset’s fair value less costs of disposal
and value in use (being the present value of the expected future
cash flows of the relevant asset or CGU, as determined by
management). An impairment loss is recognized for the amount by
which the CGU’s carrying amount exceeds its recoverable
amount.
Mineral property
assets are tested for impairment using the impairment indicators
under IFRS 6 “Exploration for and Evaluation of Mineral
Resources” up until the commercial and technical feasibility
for the property is established. From that point onwards, mineral
property assets are tested for impairment using the impairment
indicators of IAS 36 “Impairment of
Assets”.
Post-employment
benefit obligations
The Company
assumed the obligation of a predecessor company to provide life
insurance, supplemental health care and dental benefits, excluding
pensions, to its former Canadian employees who retired from active
service prior to 1997. The estimated cost of providing these
benefits is actuarially determined using the projected benefits
method and is recorded on the balance sheet at its estimated
present value. The interest cost on this unfunded liability is
being accreted over the remaining lives of this retiree group.
Experience gains and losses are being deferred as a component of
accumulated other comprehensive income or loss and are adjusted, as
required, on the obligations re-measurement date.
Stock-based
compensation
The Company uses
a fair value-based method of accounting for stock options to
employees and to non-employees. The fair value is determined using
the Black-Scholes option pricing model on the date of the grant.
The cost is recognized on a graded method basis, adjusted for
expected forfeitures, over the applicable vesting period as an
increase in stock-based compensation expense and the contributed
surplus account. When such stock options are exercised, the
proceeds received by the Company, together with the respective
amount from contributed surplus, are credited to share
capital.
The Company also
has a share unit plan pursuant to which it may grant share units to
employees – the share units are equity-settled awards. The
Company determines the fair value of the awards on the date of
grant. The cost is recognized on a graded method basis, adjusted
for expected forfeitures, over the applicable vesting period, as an
increase in share-based compensation expense and the contributed
surplus account. When such share units are settled for common
shares, the applicable amounts of contributed surplus are credited
to share capital.
Termination
benefits
The Company
recognizes termination benefits when it is demonstrably committed
to either terminating the employment of current employees according
to a detailed formal plan without possibility of withdrawal, or
providing benefits as a result of an offer made to encourage
voluntary termination. Benefits falling due more than twelve months
after the end of the reporting period are discounted to their
present value.
J.
Reclamation
provisions
Reclamation
provisions, which are legal and constructive obligations related to
the retirement of tangible long-lived assets, are recognized when
such obligations are incurred and a reasonable estimate of the
value can be determined. These obligations are measured initially
at the present value of expected cash flows using a pre-tax
discount rate reflecting risks specific to the liability and the
resulting costs are capitalized and added to the carrying value of
the related assets. In subsequent periods, the liability is
adjusted for the accretion of the discount and the expense is
recorded in the statement of income or loss. Changes in the amount
or timing of the underlying future cash flows or changes in the
discount rate are immediately recognized as an increase or decrease
in the carrying amounts of the related asset, if one exists, and
liability. These costs are amortized to the results of operations
over the life of the asset. Reductions in the amount of the
liability are first applied against the amount of the net
reclamation asset with any excess value being recorded in the
statement of income or loss.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The
Company’s activities are subject to numerous governmental
laws and regulations. Estimates of future reclamation liabilities
for asset decommissioning and site restoration are recognized in
the period when such liabilities are incurred. These estimates are
updated on a periodic basis and are subject to changing laws,
regulatory requirements, changing technology and other factors
which will be recognized when appropriate. Liabilities related to
site restoration include long-term treatment and monitoring costs
and incorporate total expected costs net of recoveries.
Expenditures incurred to dismantle facilities, restore and monitor
closed resource properties are charged against the related
reclamation liability.
Provisions for
restructuring costs and legal claims, where applicable, are
recognized in liabilities when the Company has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and the amount can be reliably estimated. Provisions
are measured at management’s best estimate of the expenditure
required to settle the obligation at the end of the reporting
period, and are discounted to present value where the impact of the
discount is material. The Company performs evaluations to identify
onerous contracts and, where applicable, records provisions for
such contracts.
L.
Current
and deferred Income tax
Current income
tax payable is based on taxable income for the period. Taxable
income differs from income as reported in the statement of income
or loss because it excludes items of income or expense that are
taxable or deductible in other periods and it further excludes
items that are never taxable or deductible. The Company’s
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred income
taxes are accounted for using the balance sheet liability method.
Deferred income tax assets and liabilities are computed based on
temporary differences between the financial statement carrying
values of the existing assets and liabilities and their respective
income tax bases used in the computation of taxable income.
Computed deferred tax liabilities are generally recognized for all
taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that taxable income
will be available against which deductible temporary differences
can be utilized. Such assets and liabilities are not recognized if
the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
income nor the accounting income. Deferred tax liabilities are
recognized for taxable temporary differences arising on investments
in subsidiaries and investments, and interests in joint ventures,
except where the Company is able to control the reversal of the
temporary differences and it is probable that the temporary
differences will not reverse in the foreseeable future. The
carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable
that sufficient taxable earnings will be available to allow all or
part of the asset to be recovered.
Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realized, based
on tax rates and tax laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax is charged or
credited to the statement of income or loss (or comprehensive
income or loss in some specific cases), except when it relates to
items charged or credited directly to equity, in which case the
deferred tax is also recorded within equity.
Income tax assets
and liabilities are offset when there is a legally enforceable
right to offset the assets and liabilities and when they relate to
income taxes levied by the same tax authority on either the same
taxable entity or different taxable entities where there is an
intention to settle the balance on a net basis.
M.
Flow-through
common shares
The
Company’s Canadian exploration activities have been financed
in part through the issuance of flow-through common shares, whereby
the Canadian income tax deductions relating to these expenditures
are claimable by the subscribers and not by the Company. The
proceeds from issuing flow-through shares are allocated between the
offering of shares and the sale of tax benefits. The allocation is
based on the difference (“premium”) between the quoted
price of the Company’s existing shares and the amount the
investor pays for the actual flow-through shares. A liability is
recognized for the premium when the shares are issued, and is
extinguished when the tax effect of the temporary differences,
resulting from the renunciation of the tax deduction to the
flow-through shareholders, is recorded - with the difference
between the liability and the value of the tax assets renounced
being recorded as a deferred tax expense. The tax effect of the
renunciation is recorded at the time the Company makes the
renunciation to its subscribers – which may differ from the
effective date of renunciation. If the flow-through shares are not
issued at a premium, a liability is not established, and on
renunciation the full value of the tax assets renounced is recorded
as a deferred tax expense.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Revenue
from pre-sold toll milling services
Revenue from the
pre-sale of toll milling arrangement cash flows is recognized as
the toll milling services are provided. At contract inception, the
Company estimates the expected transaction price of the toll
milling services being sold based on available information and
calculates an average per unit transaction price that applies over
the life of the contract. This unit price is used to draw-down the
deferred revenue balance as the toll milling services occur. When
changes occur to the expected timing, or volume of toll milling
services, the per unit transaction price is adjusted to reflect the
change (such review to be done annually, at a minimum), and a
cumulative catch up adjustment is made to reflect the updated rate.
The amount of the upfront payment received from the toll milling
pre-sale arrangements includes a significant financing component
due to the longer term nature of such agreements. As such, the
Company also recognizes accretion expense on the deferred revenue
balance which is recorded in the statement of income or loss
through “Finance expense, net”.
Revenue
from environmental services (i.e. Closed Mines Group)
Environmental
service contracts represent a series of distinct performance
obligations that are substantially the same and have the same
pattern of transfer of control to the customer. The transaction
price is estimated at contract inception and is recognized over the
life of the contract as control is transferred to the customer.
Variable consideration, where applicable, is estimated at contract
inception using either the expected value method or the most likely
amount method. If it is highly probable that a subsequent reversal
of revenue will not occur when the uncertainty has been resolved,
the Company will recognize as revenue the estimated transaction
price, including the estimate of the variable portion, upon
transfer of control to the customer, otherwise the variable portion
of the transaction price will be constrained, and will not be
recognized as revenue until the uncertainty has been
resolved.
Revenue
from management services (i.e. UPC)
The management
services arrangement with UPC represents a series of distinct
performance obligations that are substantially the same and have
the same pattern of transfer of control to the customer. The
transaction price for the contract is estimated at contract
inception and is recognized over the life of the contract as
control is transferred to the customer as the services are
provided. The variable consideration related to the net asset value
(“NAV”) based management fee was estimated at contract
inception using the expected value method. It was determined that
it is highly probable that a subsequent reversal of revenue would
occur if the variable consideration was included in the transaction
price, and as such, the variable portion of the transaction price
will be measured and recognized when the uncertainty has been
resolved (i.e. when the actual NAV has been
calculated).
Commission
revenue earned on acquisition or sale of U3O8 and
UF6 on
behalf of UPC (or other parties where Denison acts as an agent) is
recognized when control of the related U3O8 or UF6 passes to the
customer, which is the date when title of the U3O8 and
UF6
passes to the customer.
Revenue
from spot sales of uranium
In a uranium
supply arrangement, the Company is contractually obligated to
provide uranium concentrates to the customer. Each delivery is
considered a separate performance obligation under the contract
– revenue is measured based on the transaction price
specified in the contract and the Company recognizes revenue when
control to the uranium has been transferred to the
customer.
Uranium can be
delivered either to the customer directly (physical deliveries) or
notionally under title within a uranium storage facility (notional
deliveries). For physical deliveries to customers, the terms in the
supply arrangement specify the location of delivery and revenue is
recognized when control transfers to the customer which is
generally when the uranium has been delivered and accepted by the
customer at that location. For notional deliveries at a uranium
storage facility, revenue is recognized on the date that the
Company specifies the storage facility to transfer title of a
contractually specified quantity of uranium to a customer’s
account at the storage facility.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
O.
Earnings
(loss) per share
Basic earnings
(loss) per share (“EPS”) is calculated by dividing the
net income or loss for the period attributable to equity owners of
DMC by the weighted average number of common shares outstanding
during the period.
Diluted EPS is
calculated by adjusting the weighted average number of common
shares outstanding for dilutive instruments. The number of shares
included with respect to options, warrants and similar instruments
is computed using the treasury stock method.
3.
CRITICAL
ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation
of consolidated financial statements in accordance with IFRS
requires the use of certain critical accounting estimates and
judgements that affect the amounts reported. It also requires
management to exercise judgement in applying the Company’s
accounting policies. These judgements and estimates are based on
management’s best knowledge of the relevant facts and
circumstances taking into account previous experience. Although the
Company regularly reviews the estimates and judgements made that
affect these financial statements, actual results may be materially
different.
Significant
estimates and judgements made by management relate to:
A.
Determination
of a mineral property being sufficiently advanced
The Company
follows a policy of capitalizing non-exploration related
expenditures on properties it considers to be sufficiently
advanced. Once a mineral property is determined to be sufficiently
advanced, that determination is irrevocable and the capitalization
policy continues to apply over the life of the property. In
determining whether or not a mineral property is sufficiently
advanced, management considers a number of factors, including, but
not limited to: current uranium market conditions, the quality of
resources identified, access to the resource, the suitability of
the resource to current mining methods, ease of permitting,
confidence in the jurisdiction in which the resource is located and
mill processing complexity.
Many of these
factors are subject to risks and uncertainties that can support a
“sufficiently advanced” determination as at one point
in time but not support it at another. The final determination
requires significant judgment on the part of the Company’s
management and directly impacts the carrying value of the
Company’s mineral properties.
B.
Mineral
property impairment reviews and impairment adjustments
Mineral
properties are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. When an indicator is identified, the Company
determines the recoverable amount of the property, which is the
higher of an asset’s fair value less costs of disposal or
value in use. An impairment loss is recognized if the carrying
value exceeds the recoverable amount. The recoverable amount of a
mineral property may be determined by reference to estimated future
operating results and discounted net cash flows, current market
valuations of similar properties or a combination of the above. In
undertaking this review, management of the Company is required to
make significant estimates of, amongst other things: reserve and
resource amounts, future production and sale volumes, forecast
commodity prices, future operating, capital and reclamation costs
to the end of the mine’s life and current market valuations
from observable market data which may not be directly comparable.
These estimates are subject to various risks and uncertainties,
which may ultimately have an effect on the expected recoverable
amount of a specific mineral property asset. Changes in these
estimates could have a material impact on the carrying value of the
mineral property amounts and the impairment losses
recognized.
C.
Deferred
revenue – pre-sold toll milling: classification
In February 2017,
Denison closed an arrangement with Anglo Pacific Group PLC and its
subsidiaries (the “APG Arrangement” and
“APG” respectively – see note 11). Under the APG
Arrangement, Denison monetized its right to receive future toll
milling cash receipts from July 1, 2016 onwards from the MLJV under
the current toll milling agreement with the CLJV for an upfront
cash payment. The APG Arrangement consisted of a loan structure and
a stream arrangement. Significant judgement was required to
determine whether the APG Arrangement should be accounted for as a
financial obligation (i.e. debt) or deferred revenue.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Key factors that
support the deferred revenue conclusion reached by management
include, but are not limited to: a) Limited recourse loan structure
– amounts due to APG are generally repayable only to the
extent of Denison’s share of the toll milling revenues earned
by the MLJV from the processing of the first 215 million pounds of
U3O8 from the Cigar
Lake mine on or after July 1, 2016, under the terms of the current
Cigar Lake toll milling agreement; and b) No warranty of the future
rate of production - no warranty is provided by Denison to APG
regarding the future rate of production at the Cigar Lake mine and
/ or the McClean Lake mill, or the amount and / or collectability
of cash receipts to be received by the MLJV in respect of toll
milling of Cigar Lake ore.
D.
Deferred
revenue – pre-sold toll milling: revenue
recognition
In February 2017,
Denison closed the APG Arrangement and effectively monetized its
right to receive specified future toll milling cash receipts from
the MLJV related to the current toll milling agreement with the
CLJV. In exchange, Denison received a net up-front payment of
$39,980,000 which has been accounted for as a deferred revenue
liability as at the transaction close date.
Under IFRS 15,
the Company is required to recognize a revenue component and a
financing component as it draws down the deferred revenue
associated with the APG Arrangement over the life of the specified
toll milling production included in the APG Arrangement. In
estimating both of these components, the Company is required to
make assumptions relating to the future toll milling production
volume associated with Cigar Lake Phase 1 and 2 ore reserves and
resources (to end of mine life) and estimates of the annual timing
of that production. Changes in these estimates affect the
underlying production profile, which in turn affects the average
toll milling drawdown rate used to recognize revenue.
When the average
toll milling drawdown rate is changed, the impact is reflected on a
life-to-date production basis with a retroactive adjustment to
revenue recorded in the current period. Going forward, each time
the Company updates its estimates of the underlying production
profile for the APG Arrangement (typically in the quarter that
information relating to Cigar Lake uranium resource updates and /
or production schedules becomes publicly available), retroactive
adjustments to revenue will be recorded in the period that the
revised estimate is determined – such adjustments, which are
non-cash in nature, could be material.
E.
Deferred
tax assets and liabilities
Deferred tax
assets and liabilities are computed in respect of taxes that are
based on taxable profit. Taxable profit will often differ from
accounting profit and management may need to exercise judgement to
determine whether some taxes are income taxes (and subject to
deferred tax accounting) or operating expenses.
Deferred tax
assets and liabilities are measured using enacted or substantively
enacted tax rates expected to apply when the temporary differences
between accounting carrying values and tax basis are expected to be
recovered or settled. The determination of the ability of the
Company to utilize tax loss carry forwards and other deferred tax
assets to offset deferred tax liabilities requires management to
exercise judgment and make certain assumptions about the future
performance of the Company. Management is required to assess
whether it is “probable” that the Company will benefit
from these prior losses and other deferred tax assets. Changes in
economic conditions, commodity prices and other factors could
result in revisions to the estimates of the benefits to be realized
or the timing of utilizing the losses.
F.
Reclamation
obligations
Asset retirement
obligations are recorded as a liability when the asset is initially
constructed or a constructive or legal obligation exists. The
valuation of the liability typically involves identifying costs to
be incurred in the future and discounting them to the present using
an appropriate discount rate for the liability. The determination
of future costs involves a number of estimates relating to timing,
type of costs, mine closure plans, and review of potential methods
and technical advancements. Furthermore, due to uncertainties
concerning environmental remediation, the ultimate cost of the
Company’s decommissioning liability could differ materially
from amounts provided. The estimate of the Company’s
obligation is subject to change due to amendments to applicable
laws and regulations and as new information concerning the
Company’s operations becomes available. The Company is not
able to determine the impact on its financial position, if any, of
environmental laws and regulations that may be enacted in the
future.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
4.
CASH AND
CASH EQUIVALENTS
The cash and cash
equivalent balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Cash
|
$12,004
|
$1,583
|
Cash in MLJV and
MWJV
|
540
|
1,397
|
Cash equivalents
|
12,448
|
5,210
|
|
$24,992
|
$8,190
|
Cash equivalents
consist of various investment savings account instruments and money
market funds, all of which are short term in nature, highly liquid
and readily convertible into cash.
5.
TRADE AND
OTHER RECEIVABLES
The trade and
other receivables balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Trade
receivables
|
$2,644
|
$2,608
|
Receivables in MLJV and
MWJV
|
394
|
1,125
|
Sales tax
receivables
|
154
|
92
|
Sundry
receivables
|
182
|
198
|
|
$3,374
|
$4,023
|
The inventories
balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Uranium
concentrates
|
$-
|
$526
|
Inventory of ore in
stockpiles
|
2,098
|
2,098
|
Mine and mill supplies in
MLJV
|
3,015
|
2,826
|
|
$5,113
|
$5,450
|
|
|
|
Inventories-by balance sheet
presentation:
|
|
|
Current
|
$3,015
|
$3,352
|
Long term-ore in
stockpiles
|
2,098
|
2,098
|
|
$5,113
|
$5,450
|
In 2020, the
Company sold all of its uranium concentrate inventory.
Long-term ore in
stockpile inventory represents an estimate of the amount of ore on
the stockpile in excess of the next twelve months of planned mill
production.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The investments
balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Investments:
|
|
|
Equity
instruments
|
$16,950
|
$12,104
|
|
$16,950
|
$12,104
|
|
|
|
Investments-by balance sheet
presentation:
|
|
|
Current
|
$16,657
|
$-
|
Long-term
|
293
|
12,104
|
|
$16,950
|
$12,104
|
The investments
continuity summary is as follows:
(in thousands)
|
|
|
|
|
|
Balance-January
1
|
$12,104
|
$2,255
|
Proceeds from property
disposals (note 10)
|
270
|
-
|
Purchase of
investments
|
7
|
511
|
Sale of
investments
|
(477)
|
-
|
Transfer from investment in
associates at fair value (note 8)
|
-
|
10,423
|
Fair value gain (loss) to
profit and loss (note 20)
|
5,046
|
(1,085)
|
Balance-December
31
|
$16,950
|
$12,104
|
At December 31,
2020, the Company holds equity instruments consisting of shares and
warrants in publicly-traded companies and no debt
instruments.
8.
INVESTMENT
IN ASSOCIATE
In June 2016,
Denison acquired a significant shareholding in GoviEx Uranium Inc
(“GoviEx”). 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. Denison’s ownership interest in GoviEx at December
31, 2020 is approximately 13.72%, based on publicly available
information, and it continues to have one director appointed to the
GoviEx board of directors
Through the
voting power of its share ownership interest, its large warrant
holdings and its seat on the board of directors, Denison had the
ability to demonstrate significant influence over GoviEx and used
the equity method to account for this investment up to September
30, 2019. On October 1, 2019 (the deconsolidation date), Denison
discontinued use of the equity method based on a determination that
Denison’s influence over GoviEx was no longer demonstrable as
significant - due to the expiry of its warrant holdings and an
increased ownership interest in GoviEx’s main subsidiary by
the Government of Niger during GoviEx’s third quarter of
2019.
A continuity
summary of the investment in GoviEx, using the equity method, is as
follows:
(in thousands except share
amounts)
|
|
|
|
|
|
Balance-January 1,
2019
|
65,144,021
|
5,582
|
Equity share of net
loss
|
-
|
(678)
|
Dilution gain
|
-
|
252
|
Deconsolidation of investment
in GoviEx
|
-
|
(5,156)
|
Balance-December 31,
2019
|
$65,144,021
|
-
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
On the
deconsolidation date, Denison classified its equity investment in
GoviEx as FVTPL. As a result, Denison recognized a gain of
$5,267,000 which represents the excess of the fair value of the
investment on that date ($10,423,000) as compared to the
investment’s carrying value under the equity method
($5,156,000).
In 2020,
Denison’s investment in GoviEx has been classified as FVTPL
and is included as a component of Investments on the balance sheet
(see note 7).
9.
RESTRICTED
CASH AND INVESTMENTS
The Company has
certain restricted cash and investments deposited to collateralize
a portion of its reclamation obligations. The restricted cash and
investments balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Cash and cash
equivalents
|
$2,883
|
$2,859
|
Investments
|
9,135
|
9,135
|
|
$12,018
|
$11,994
|
|
|
|
Restricted cash and
investments-by item:
|
|
|
Elliot Lake reclamation trust
fund
|
$2,883
|
$2,859
|
Letters of credit facility
pledged assets
|
9,000
|
9,000
|
Letters of credit additional
collateral
|
135
|
135
|
|
$12,018
|
$11,994
|
At December 31,
2020 and December 21, 2019, investments consist of guaranteed
investment certificates with maturities of more than 90
days.
Elliot
Lake reclamation trust fund
The Company has
the obligation to maintain its decommissioned Elliot Lake uranium
mine pursuant to a Reclamation Funding Agreement effective December
21, 1995 (“Agreement”) with the Governments of Canada
and Ontario. The Agreement, as further amended in February 1999,
requires the Company to maintain funds in the reclamation trust
fund equal to estimated reclamation spending for the succeeding six
calendar years, less interest expected to accrue on the funds
during the period. Withdrawals from this reclamation trust fund can
only be made with the approval of the Governments of Canada and
Ontario to fund Elliot Lake monitoring and site restoration
costs.
In 2020, the
Company deposited an additional $803,000 into the Elliot Lake
reclamation trust fund and withdrew $811,000. In 2019, the Company
deposited an additional $477,000 into the Elliot Lake reclamation
trust fund and withdrew $797,000.
Letters of
credit facility pledged assets
At December 31,
2020, 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 11, 13 and 14). The
funds were initially deposited in 2017.
Letters of
credit additional collateral
At December 31,
2020, 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 13 and
14).
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
10.
PROPERTY,
PLANT AND EQUIPMENT
The property,
plant and equipment (“PP&E”) continuity summary is
as follows:
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
Balance – January 1,
2019
|
$103,430
|
$-
|
$178,947
|
$282,377
|
Adoption of IFRS
16
|
-
|
944
|
-
|
944
|
Additions
|
376
|
38
|
534
|
948
|
Disposals
|
(104)
|
(76)
|
-
|
(180)
|
Reclamation adjustment (note
13)
|
885
|
-
|
-
|
885
|
Balance – December 31,
2019
|
$104,587
|
$906
|
$179,481
|
$284,974
|
|
|
|
|
|
Additions
|
16
|
26
|
262
|
304
|
Disposals
|
(60)
|
(41)
|
-
|
(101)
|
Reclamation adjustment (note
13)
|
1,544
|
-
|
-
|
1,544
|
Balance
– December 31, 2020
|
$106,087
|
$891
|
$179,743
|
$286,721
|
|
|
|
|
|
Accumulated amortization,
depreciation:
|
|
|
|
|
Balance – January 1,
2019
|
$(24,086)
|
$-
|
$-
|
$(24,086)
|
Amortization
|
(212)
|
-
|
-
|
(212)
|
Depreciation
|
(3,527)
|
(237)
|
-
|
(3,764)
|
Disposals
|
95
|
40
|
-
|
135
|
Reclamation adjustment (note
13)
|
212
|
-
|
-
|
212
|
Balance – December 31,
2019
|
$(27,518)
|
$(197)
|
$-
|
$(27,715)
|
|
|
|
|
|
Amortization
|
(243)
|
-
|
-
|
(243)
|
Depreciation
|
(2,037)
|
(198)
|
-
|
(2,235)
|
Disposals
|
60
|
39
|
-
|
99
|
Reclamation adjustment (note
13)
|
243
|
-
|
-
|
243
|
Balance
– December 31, 2020
|
$(29,495)
|
$(356)
|
$-
|
$(29,851)
|
|
|
|
|
|
Carrying value:
|
|
|
|
|
Balance – December 31,
2019
|
$77,069
|
$709
|
$179,481
|
$257,259
|
Balance – December 31,
2020
|
$76,592
|
$535
|
$179,743
|
$256,870
|
Plant and
Equipment - Owned
The Company has a
22.5% 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
$68,909,000, or 90.0%, of the December 2020 total carrying value
amount of owned PP&E assets.
A toll milling
agreement amongst the participants of the MLJV and the CLJV
provides for the processing of certain future output of the Cigar
Lake mine at the McClean Lake mill, for which the owners of the
McClean Lake mill receive a toll milling fee and other benefits
(Denison further has an agreement with APG reqarding the receipt of
certain toll milling fees it receives from this toll milling
agreement – see note 11). In determining the units of
production amortization rate for the McClean Lake mill, the amount
of production attributable to the mill assets includes
Denison’s expected share of mill feed related to MLJV ores,
MWJV ores and the CLJV toll milling contract. Milling activities in
2019 and 2020 at the McClean Lake mill have been dedicated to
processing and packaging ore from the Cigar Lake mine. Mill
production in 2020 has been impacted by the COVID-19
pandemic.
Plant and
Equipment – Right-of-Use
In conjunction
with the adoption of IFRS 16 Leases (“IFRS 16”),
effective January 1, 2019, the Company has included the cost of
various right-of-use (“ROU”) assets within PP&E.
ROU assets consist of building, vehicle and office equipment
leases. The majority of the value is attributable to the building
lease assets for the Company’s offices and warehousing space
located in Toronto and Saskatoon.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Mineral
Properties
The Company has
various interests in development, evaluation and exploration
projects located in Canada which are held directly or through
option or various contractual agreements. The following projects,
all located in Saskatchewan, represent $162,641,000, or 90.5%, of
the carrying value amount of mineral property assets as at December
31, 2020:
a)
Wheeler River - the Company
has a 90.0% interest in the project (includes the Phoenix and
Gryphon deposits);
b)
Waterbury Lake - the Company
has a 66.90% interest in the project (includes the THT and Huskie
deposits) and also has a 2.0% net smelter return royalty on the
portion of the project it does not own;
c)
Midwest - the Company has a
25.17% interest in the project (includes the Midwest Main and
Midwest A deposits);
d)
Mann Lake - the Company has a
30.0% interest in the project;
e)
Wolly - the Company has a
21.89% interest in the project;
f)
Johnston Lake - the Company
has a 100% interest in the project; and
g)
McClean Lake - the Company
has a 22.5% interest in the project (includes the Sue D, Sue E,
Caribou, McClean North and McClean South deposits).
Waterbury
Lake
In 2019, the
Company increased its interest in the Waterbury Lake property from
65.92% to 66.57% and further increased it again in 2020 to 66.90%
under the terms of the dilution provisions in the agreements
governing the project (see note 22).
Hook
Carter
In November 2016,
Denison completed the purchase of an 80% interest in the
Hook-Carter property, located in the southwestern portion of the
Athabasca Basin region in northern Saskatchewan, from ALX Uranium
Corp (“ALX”), with ALX retaining a 20%
interest.
Under terms in
the agreement, Denison agreed to fund ALX’s share of the
first $12,000,000 in expenditures on the property. As at December
31, 2020, the Company has spent $6,719,000 towards ALX’s
carried interest on the project since its acquisition in November
2016 (December 31, 2019: $6,712,000).
Moon Lake
South
In January 2016,
the Company entered into an option agreement with CanAlaska Uranium
Ltd (“CanAlaska”) to earn an interest in
CanAlaska’s Moon Lake South project located in the Athabasca
Basin in Saskatchewan. Under the terms of the option, Denison would
earn an initial 51% interest in the project by spending $200,000 by
December 31, 2017 and would increase its interest to 75% by
spending an additional $500,000 by December 31, 2020.
As at December
31, 2020, the Company has spent the required $700,000 under the
option and has earned a 75% interest in the project.
Murphy
Lake
In November 2019,
Denison completed an agreement with Eros Resources Corp
(“Eros”) to acquire Eros’s minority interest in
the Murphy Lake project. Denison acquired Eros’s 17.42%
minority interest in Murphy Lake in exchange for the issuance of
32,262 common shares of DMC and the granting of a 1.5% net smelter
return royalty on the project. Denison’s interest in Murphy
Lake is now 100%.
Eros’s
minority interest acquired by Denison has been accounted for as an
asset acquisition with share based consideration. Denison recorded
a total acquisition value of $40,000 in 2019, which included
transaction costs of $21,000 and $19,000 of share based
consideration which were fair valued using Denison’s closing
share price on November 28, 2019 of $0.58 per share. In 2020, the
total acquisition value was reduced to $35,000 due to the reversal
of $5,000 of estimated transaction related costs.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
Talbot
Lake
In June 2020, the
Company closed an agreement to sell its 100% interest in the Talbot
Lake property to Argo Gold Inc (“Argo Gold”). At
closing, Denison received cash consideration of $135,000 and
1,350,000 common shares of Argo Gold that were fair valued at
$270,000. The shares were subject to a four month hold. The Company
has recognized a gain on sale of $405,000 in conjunction with the
sale.
Under the terms
of the agreement, Denison has also received a 2% net smelter
royalty on the property and it is entitled to receive an additional
milestone payment, in cash or shares, if the property produces a
resource estimate that meets certain specified amounts in the
agreement.
11. DEFERRED
REVENUE
The deferred
revenue balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Deferred revenue –
pre-sold toll milling:
|
|
|
CLJV Toll Milling -
APG
|
$36,617
|
$36,321
|
|
$36,617
|
$36,321
|
Deferred revenue-by balance
sheet presentation:
|
|
|
Current
|
$3,478
|
$4,580
|
Non-current
|
33,139
|
31,741
|
|
$36,617
|
$36,321
|
The deferred
revenue liability continuity summary is as follows:
(in thousands)
|
|
|
|
|
|
Balance-January
1
|
$36,321
|
$37,727
|
Revenue earned during the
period (note 21)
|
(2,762)
|
(4,609)
|
Accretion
|
3,058
|
3,203
|
Balance-December
31
|
$36,617
|
$36,321
|
Arrangement
with Anglo Pacific Group PLC
In February 2017,
Denison closed an arrangement with APG under which Denison received
an upfront payment of $43,500,000 in exchange for its right to
receive future toll milling cash receipts from the MLJV under the
current toll milling agreement with the CLJV from July 1, 2016
onwards. The up-front payment was based upon an estimate of the
gross toll milling cash receipts to be received by Denison
discounted at a rate of 8.50%.
The APG
Arrangement represents a contractual obligation of Denison to pay
onward to APG any cash proceeds of future toll milling revenue
earned by the Company related to the processing of the specified
Cigar Lake ore through the McClean Lake mill. At closing, the
Company made payments to APG of $3,520,000, representing the Cigar
Lake toll milling cash receipts received by Denison in respect of
toll milling activity for the period from July 1, 2016 through
January 31, 2017, and reflected those amounts as a reduction of the
initial upfront amount received, thereby reducing the initial
deferred revenue balance to $39,980,000 at the transaction
date.
In connection
with the closing of the APG Arrangement, Denison reimbursed APG for
USD$100,000 in due diligence costs and granted 1,673,077 share
purchase warrants, exercisable for 3 years from the closing date at
an exercise price of $1.27 per share, to APG in satisfaction of a
$435,000 arrangement fee payable (see note 17). In addition, the
terms of the BNS Letters of Credit Facility between BNS and Denison
were amended to reflect certain changes required to facilitate an
Intercreditor Agreement between APG, BNS and Denison (see note
14).
In 2019, the
Company recognized $4,609,000 of toll milling revenue from the
draw-down of deferred revenue, based on Cigar Lake toll milling
production of 18,012,000 pounds U3O8 (100% basis). The
drawdown in 2019 includes a cumulative increase in revenue for
prior periods of $26,000 resulting from changes in estimates to the
toll milling drawdown rate in the first quarter of
2019.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
In 2020, the
Company recognized $2,762,000 of toll milling revenue from the
draw-down of deferred revenue, based on Cigar Lake toll milling
production of 10,069,000 pounds U3O8 (100% basis). The
drawdown in 2020 includes a cumulative increase in revenue for
prior periods of $168,000 resulting from changes in estimates to
the toll milling drawdown rate during 2020.
12.
POST-EMPLOYMENT
BENEFITS
The Company
provides post-employment benefits for former Canadian employees who
retired on immediate pension prior to 1997. The post-employment
benefits provided include life insurance and medical and dental
benefits as set out in the applicable group policies. No
post-employment benefits are provided to employees outside the
employee group referenced above. The post-employment benefit plan
is not funded.
The effective
date of the most recent actuarial valuation of the accrued benefit
obligation is October 1, 2020. The amount accrued is based on
estimates provided by the plan administrator which are based on
past experience, limits on coverage as set out in the applicable
group policies and assumptions about future cost trends. The
significant assumptions used in the most recent valuation are
listed below:
●
Discount rate of
1.75%;
●
Medical cost increase trend
rate of 4.09% in 2020, grading up to 5.30% per year by 2026,
staying flat at 5.30% per year from 2026 to 2030 and then grading
down to 4.05% per year from 2031 through to 2041; and
●
Dental cost increase trend
rate of 4.50% in 2020, grading up to 5.30% per year by 2026,
staying flat at 5.30% per year from 2026 to 2030 and then grading
down to 4.05% per year from 2031 through to 2041.
The
post-employment benefits balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Accrued benefit
obligation
|
$1,361
|
$2,258
|
|
$1,361
|
$2,258
|
|
|
|
Post-employment benefits-by
balance sheet presentation:
|
|
|
Current
|
$120
|
$150
|
Non-current
|
1,241
|
2,108
|
|
$1,361
|
$2,258
|
The
post-employment benefits continuity summary is as
follows:
(in thousands)
|
|
|
|
|
|
Balance-January
1
|
$2,258
|
$2,295
|
Accretion
|
57
|
70
|
Benefits paid
|
(90)
|
(107)
|
Experience gain
adjustment
|
(864)
|
-
|
Balance-December
31
|
$1,361
|
$2,258
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
13. RECLAMATION
OBLIGATIONS
The reclamation
obligations balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Reclamation obligations-by
item:
|
|
|
Elliot Lake
|
$21,523
|
$17,987
|
McClean and Midwest Joint
Ventures
|
16,875
|
14,503
|
Other
|
22
|
22
|
|
$38,420
|
$32,512
|
Reclamation obligations-by
balance sheet presentation:
|
|
|
Current
|
$802
|
$914
|
Non-current
|
37,618
|
31,598
|
|
$38,420
|
$32,512
|
The reclamation
obligations continuity summary is as follows:
(in thousands)
|
|
|
|
|
|
Balance-January
1
|
$32,512
|
$30,064
|
Accretion
|
1,352
|
1,361
|
Expenditures
incurred
|
(826)
|
(855)
|
Liability adjustments-income
statement (note 20)
|
3,595
|
845
|
Liability adjustments-balance
sheet (note 10)
|
1,787
|
1,097
|
Balance-December
31
|
$38,420
|
$32,512
|
Site
Restoration: Elliot Lake
The Elliot Lake
uranium mine was closed in 1992 and capital works to decommission
this site were completed in 1997. The remaining provision is for
the estimated cost of monitoring the Tailings Management Areas at
the Denison and Stanrock sites and for treatment of water
discharged from these areas. The Company conducts its activities at
both sites pursuant to licenses issued by the Canadian Nuclear
Safety Commission (“CNSC”). The above accrual
represents the Company’s best estimate of the present value
of the total future reclamation cost, based on assumptions as to
what levels of treatment will be required in the future, discounted
at 3.50% (2019: 4.16%). As at December 31, 2020, the undiscounted
amount of estimated future reclamation costs, in current year
dollars, is $32,335,000 (December 31, 2019: $31,604,000). Revisions
to the reclamation liability for Elliot Lake are recognized in the
income statement as the site is closed and there is no asset
recognized for this site.
Spending on
restoration activities at the Elliot Lake site is funded by the
Elliot Lake Reclamation Trust fund (see note 9).
Site
Restoration: McClean Lake Joint Venture and Midwest Joint
Venture
The McClean Lake
and Midwest operations are subject to environmental regulations as
set out by the Saskatchewan government and the CNSC. Cost estimates
of the estimated future decommissioning and reclamation activities
are prepared periodically and filed with the applicable regulatory
authorities for approval. The above accrual represents the
Company’s best estimate of the present value of the future
reclamation cost contemplated in these cost estimates discounted at
3.50% (2019: 4.16%). As at December 31, 2020, the undiscounted
amount of estimated future reclamation costs, in current year
dollars, is $24,135,000 (December 31, 2019: $23,685,000). The
majority of the reclamation costs are expected to be incurred
between 2038 and 2056. Revisions to the reclamation liabilities for
McClean Lake and Midwest are recognized on the balance sheet as
adjustments to the net reclamation assets associated with the
sites.
Under the Mineral
Industry Environmental Protection Regulations (1996), the Company
is required to provide its pro-rata share of financial assurances
to the province of Saskatchewan based on periodic filings of
estimated reclamation plans and the associated undiscounted future
reclamation costs included therein. Accordingly, as at December 31,
2020, the Company has in place irrevocable standby letters of
credit, from a chartered bank, in favour of the Saskatchewan
Ministry of the Environment, totalling $24,135,000 which relate to
the most recently filed reclamation plan dated March 2016. An
updated reclamation plan is required to be filed in
2021.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
14. OTHER
LIABILITIES
The other
liabilities balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Debt
obligations:
|
|
|
Lease
obligations
|
$582
|
$739
|
Loan obligations
|
33
|
263
|
Flow-through share premium
obligation (note 16)
|
22
|
902
|
|
$637
|
$1,904
|
Other liabilities-by balance
sheet presentation:
|
|
|
Current
|
$262
|
$1,372
|
Non-current
|
375
|
532
|
|
$637
|
$1,904
|
Debt
Obligations
At December 31,
2020, the Company’s debt obligations are comprised of lease
liabilities associated with the accounting required under IFRS 16
and loan liabilities. The debt obligations continuity summary is as
follows:
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Balance – January 1,
2019
|
$-
|
$-
|
$-
|
Adoption of IFRS
16
|
944
|
-
|
944
|
Accretion
|
76
|
-
|
76
|
Additions
|
38
|
632
|
670
|
Repayments
|
(293)
|
(369)
|
(662)
|
Liability adjustment gain
(note 20)
|
(26)
|
-
|
(26)
|
Balance – December 31,
2019
|
$739
|
$263
|
$1,002
|
|
|
|
|
Accretion
|
56
|
-
|
56
|
Additions
|
26
|
-
|
26
|
Repayments
|
(237)
|
(230)
|
(467)
|
Liability adjustment gain
(note 20)
|
(2)
|
-
|
(2)
|
Balance
– December 31, 2020
|
$582
|
$33
|
$615
|
Debt
Obligations – Scheduled Maturities
The following
table outlines the Company’s scheduled maturities of its debt
obligations at December 31, 2020:
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Maturity analysis –
contractual undiscounted cash flows:
|
|
|
|
Next 12 months
|
$231
|
$9
|
$240
|
One to five
years
|
457
|
26
|
483
|
More than five
years
|
-
|
-
|
-
|
Total obligation – end
of period - undiscounted
|
688
|
35
|
723
|
Present value discount
adjustment
|
(106)
|
(2)
|
(108)
|
Total
obligation – end of period - discounted
|
$582
|
$33
|
$615
|
Letters of
Credit Facility
In 2020, the
Company had a facility in place with BNS for credit of up to
$24,000,000 with a one year term and a maturity date of January 31,
2021 (the “2020 Facility”). Use of the 2020 Facility is
restricted to non-financial letters of credit in support of
reclamation obligations.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The 2020 Facility
contains a covenant to maintain a level of tangible net worth
greater than or equal to the sum of $131,000,000 and a pledge of
$9,000,000 in restricted cash and investments as collateral for the
facility (see note 9). As additional security for the 2020
Facility, DMC has provided an unlimited full recourse guarantee and
a pledge of all of the shares of DMI. DMI has provided a
first-priority security interest in all present and future personal
property and an assignment of its rights and interests under all
material agreements relative to the McClean Lake and Midwest
projects. The 2020 Facility is subject to letter of credit fees of
2.40% (0.40% on the $9,000,000 covered by pledged cash
collateral) and standby fees of 0.75%.
At December 31,
2020, the Company was in compliance with its 2020 Facility
covenants and $24,000,000 of the 2020 Facility was being utilized
as collateral for certain letters of credit (December 31, 2019 -
$24,000,000). During 2020, the Company incurred letter of credit
and standby fees of $398,000 (2019 - $397,000).
In January 2021,
the Company has entered into an agreement with BNS to amend the
terms of the 2020 Facility to extend the maturity date to January
31, 2022 (see note 26).
15. INCOME
TAXES
The income tax
recovery balance from continuing operations consists
of:
(in
thousands)
|
|
|
|
|
|
Deferred income
tax:
|
|
|
Origination of temporary
differences
|
$710
|
$4,940
|
Tax benefit-previously
unrecognized tax assets
|
1,255
|
1,326
|
Prior year over (under)
provision
|
(1,105)
|
(890)
|
|
860
|
5,376
|
Income tax
recovery
|
$860
|
$5,376
|
The Company
operates in multiple industries and jurisdictions, and the related
income is subject to varying rates of taxation. The combined
Canadian tax rate reflects the federal and provincial tax rates in
effect in Ontario, Canada for each applicable year. A
reconciliation of the combined Canadian tax rate to the
Company’s effective rate of income tax is as
follows:
(in
thousands)
|
|
|
|
|
|
Loss before
taxes
|
$(17,143)
|
$(23,517)
|
Combined Canadian tax
rate
|
26.50%
|
26.50%
|
Income tax recovery at
combined rate
|
4,543
|
6,232
|
|
|
|
Difference in tax
rates
|
1,746
|
2,048
|
Non-deductible
amounts
|
(2,579)
|
(2,675)
|
Non-taxable
amounts
|
2,535
|
2,362
|
Previously unrecognized
deferred tax assets (1)
|
1,255
|
1,326
|
Renunciation of tax
attributes-flow through shares
|
(417)
|
(403)
|
Change in deferred tax assets
not recognized
|
(5,960)
|
(2,476)
|
Change in tax rates,
legislation
|
(55)
|
(81)
|
Prior year over (under)
provision
|
(1,105)
|
(890)
|
Other
|
897
|
(67)
|
Income tax
recovery
|
$860
|
$5,376
|
(1)
The Company has recognized
certain previously unrecognized Canadian tax assets in 2020 and
2019 as a result of the renunciation of certain tax benefits to
subscribers pursuant to its December 2019 $4,715,460 and November
2018 $5,000,000 flow-through share offerings.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The deferred
income tax assets (liabilities) balance reported on the balance
sheet is comprised of the temporary differences as presented
below:
|
|
|
(in
thousands)
|
|
|
|
|
|
Deferred income tax
assets:
|
|
|
Property, plant and
equipment, net
|
$387
|
$387
|
Post-employment
benefits
|
355
|
590
|
Reclamation
obligations
|
11,709
|
9,561
|
Tax loss carry
forwards
|
16,943
|
15,827
|
Other
|
7,747
|
8,537
|
Deferred income tax
assets-gross
|
37,141
|
34,902
|
Set-off against deferred
income tax liabilities
|
(37,141)
|
(34,902)
|
Deferred income tax
assets-per balance sheet
|
$-
|
$-
|
|
|
|
Deferred income tax
liabilities:
|
|
|
Inventory
|
$(757)
|
$(742)
|
Property, plant and
equipment, net
|
(44,436)
|
(41,949)
|
Other
|
(1,140)
|
(1,135)
|
Deferred income tax
liabilities-gross
|
(46,333)
|
(43,826)
|
Set-off of deferred income
tax assets
|
37,141
|
34,902
|
Deferred income tax
liabilities-per balance sheet
|
$(9,192)
|
$(8,924)
|
The deferred
income tax liability continuity summary is as follows:
(in thousands)
|
|
|
|
|
|
Balance-January
1
|
$(8,924)
|
$(12,963)
|
Recognized in income
(loss)
|
860
|
5,376
|
Recognized in other
liabilities (flow-through shares)
|
(902)
|
(1,337)
|
Recognized in other
comprehensive income
|
(226)
|
-
|
Balance-December
31
|
$(9,192)
|
$(8,924)
|
Management
believes that it is not probable that sufficient taxable profit
will be available in future years to allow the benefit of the
following deferred tax assets to be utilized:
|
|
|
(in
thousands)
|
|
|
|
|
|
Deferred income tax assets
not recognized
|
|
|
Property, plant and
equipment
|
$4,744
|
$7,344
|
Tax
losses – capital
|
66,873
|
66,783
|
Tax
losses – operating
|
42,635
|
35,904
|
Tax
credits
|
1,126
|
1,126
|
Other deductible temporary
differences
|
1,441
|
1,571
|
Deferred income tax assets
not recognized
|
$116,819
|
$112,728
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The expiry dates
of the Company’s Canadian tax losses and credits is as
follows:
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Tax
losses - gross
|
2025-2040
|
$220,039
|
$192,197
|
|
|
|
|
Tax
benefit at tax rate of 26% - 27%
|
|
59,578
|
51,731
|
Set-off against deferred tax
liabilities
|
|
(16,943)
|
(15,827)
|
Total tax loss assets not
recognized
|
|
$42,635
|
$35,904
|
|
|
|
|
Tax
credits
|
2025-2035
|
1,126
|
1,126
|
Total tax credit assets not
recognized
|
|
$1,126
|
$1,126
|
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:
|
|
|
|
|
|
(in thousands except share
amounts)
|
|
|
|
|
|
Balance-January 1,
2019
|
589,175,086
|
$1,331,214
|
Issued for cash:
|
|
|
Share issue
proceeds
|
6,934,500
|
4,715
|
Share issue
costs
|
-
|
(423)
|
Share option
exercises
|
663,150
|
405
|
Share option exercises-fair
value adjustment
|
-
|
140
|
Share unit exercises-fair
value adjustment
|
433,333
|
299
|
Acquisition-Murphy Lake
additional interest (note 10)
|
32,262
|
19
|
Flow-through share premium
liability (note 14)
|
-
|
(902)
|
Share
cancellations
|
(46,178)
|
-
|
|
8,017,067
|
4,253
|
Balance-December 31,
2019
|
597,192,153
|
$1,335,467
|
|
|
|
Issued for cash:
|
|
|
Share issue
proceeds
|
81,179,280
|
33,933
|
Share issue
costs
|
-
|
(3,108)
|
Share option
exercises
|
251,500
|
148
|
Share option exercises-fair
value adjustment
|
-
|
50
|
Share unit exercises-fair
value adjustment
|
358,949
|
242
|
Flow-through share premium
liability (note 14)
|
-
|
(22)
|
|
81,789,729
|
31,243
|
Balance-December 31,
2020
|
678,981,882
|
$1,366,710
|
Share
Issues
In December 2019,
Denison completed a private placement of 6,934,500 flow-through
common shares at a price of $0.68 per share for gross proceeds of
$4,715,460. The income tax benefits of this issue were renounced to
subscribers with an effective date of December 31, 2019. The
related flow-through share premium liabilities are included as a
component of other liabilities on the balance sheet at December 31,
2019 and were extinguished during 2020 when the tax benefit was
renounced to the shareholders (see note 14).
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
In April 2020,
the Company completed a public offering of 28,750,000 common shares
at a price of USD$0.20 per share for gross proceeds of $8,041,000
(USD$5,750,000). The offering included the full exercise of an
over-allotment option of 3,750,000 common shares granted to the
underwriters.
In October 2020,
the Company completed a public offering of 51,347,321 common shares
at a price of USD$0.37 per share for gross proceeds of
approximately $24,962,000 (USD$18,999,000), which included the
partial exercise by the underwriters of their over-allotment
option.
In December 2020,
Denison completed a private placement of 1,081,959 flow-through
common shares at a price of $0.86 per share for gross proceeds of
$930,485. The income tax benefits of this issue were renounced to
subscribers with an effective date of December 31, 2020. The
related flow-through share premium liabilities are included as a
component of other liabilities on the balance sheet at December 31,
2020 and will be extinguished during 2021 when the tax benefit is
renounced to the shareholders (see note 14).
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 December
31, 2020, the Company has satisfied its obligation to spend
$4,715,460 on eligible exploration expenditures by the end of
fiscal 2020 as a result of the issuance of flow-through shares in
December 2019. The Company renounced the income tax benefits of
this issue in February 2020, with an effective date of renunciation
to its subscribers of December 31, 2019. In conjunction with the
renunciation, the flow-through share premium liability at December
31, 2019 was extinguished and recognized as part of the deferred
tax recovery in 2020 (see note 15).
As at December
31, 2020, the Company estimates that it incurred $Nil of
expenditures towards its obligation to spend $930,485 on eligible
exploration expenditures by the end of fiscal 2021 as a result of
the issuance of flow-through shares in December 2020.
17. SHARE
PURCHASE WARRANTS
A continuity of
the issued and outstanding share purchase warrants in terms of
common shares of the Company and the associated dollar amounts is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands
except share amounts)
|
|
|
|
|
|
|
|
Balance-December 31,
2019
|
$1.27
|
1,673,077
|
$435
|
Expiries
|
1.27
|
(1,673,077)
|
(435)
|
Balance-December 31,
2020
|
$-
|
-
|
$-
|
The warrants
noted above, issued in February 2017 in conjunction with the APG
Arrangement (see note 11), expired on February 14, 2020. On expiry,
the balance was reclassified to Contributed Surplus.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
18. SHARE-BASED
COMPENSATION
The
Company’s share based compensation arrangements include share
options, 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:
(in thousands)
|
|
|
|
|
|
Share based compensation
expense for:
|
|
|
Share options
|
$(559)
|
$(776)
|
RSUs
|
(1,034)
|
(1,043)
|
PSUs
|
(234)
|
(403)
|
Share based
compensation expense
|
$(1,827)
|
$(2,222)
|
An additional
$1,290,000 in share-based compensation expense remains to be
recognized, up until November 2023, on outstanding options and
share units at December 31, 2020.
Share
Options
The
Company’s stock-based compensation plan (the
“Plan”) provides for the granting of share options up
to 10% of the issued and outstanding common shares at the time of
grant, subject to a maximum of 39,670,000 common shares. As at
December 31, 2020, an aggregate of 23,401,593 options (December 31,
2019: 21,900,093) have been granted (less cancellations) since the
Plan’s inception in 1997.
Under the Plan,
all share options are granted at the discretion of the
Company’s board of directors, including any vesting
provisions if applicable. The term of any share option granted may
not exceed ten years and the exercise price may not be lower than
the closing price of the Company’s shares on the last trading
day immediately preceding the date of grant. In general, share
options granted under the Plan have five year terms and vesting
periods up to 24 months.
A continuity
summary of the share options of the Company granted under the Plan
for 2020 and 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share options outstanding
– January 1
|
13,827,243
|
$0.75
|
13,865,193
|
$0.83
|
Grants
|
3,671,000
|
0.46
|
3,005,000
|
0.67
|
Exercises (1)
|
(251,500)
|
0.59
|
(663,150)
|
0.61
|
Expiries
|
(1,424,000)
|
0.97
|
(866,000)
|
1.81
|
Forfeitures
|
(745,500)
|
0.67
|
(1,513,800)
|
0.79
|
Share options outstanding
– December 31
|
15,077,243
|
$0.67
|
13,827,243
|
$0.75
|
Share options
exercisable – December 31
|
10,289,743
|
$0.74
|
9,747,721
|
$0.80
|
(1)
The weighted average share
price at the date of exercise was CAD$0.72 (2019:
CAD$0.70).
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
A summary of the
Company’s share options outstanding at December 31, 2020 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options outstanding
|
|
|
|
$0.25 to $
0.49
|
4.21
|
3,502,000
|
$0.45
|
$0.50 to $
0.74
|
2.26
|
6,443,643
|
0.64
|
|
1.19
|
5,131,600
|
0.85
|
|
2.35
|
15,077,243
|
$0.67
|
Options
outstanding at December 31, 2020 expire between March 2021 and
November 2025.
The fair value of
each option granted is estimated on the date of grant using the
Black-Scholes option pricing model. The following table outlines
the range of assumptions used in the model to determine the fair
value of options granted:
|
|
|
|
|
|
Risk-free interest
rate
|
0.27% -
0.67%
|
1.31% -
1.65%
|
Expected stock price
volatility
|
44.16% -
54.16%
|
43.86% -
49.46%
|
Expected life
|
3.4
years
|
3.4 to 3.5
years
|
Estimated forfeiture
rate
|
2.84% -
3.08%
|
2.82% -
3.12%
|
Expected dividend
yield
|
–
|
–
|
Fair value
per option granted
|
CAD$0.15 -
CAD$0.25
|
CAD$0.19 -
CAD$0.26
|
The fair values
of share options with vesting provisions are amortized on a graded
method basis as share-based compensation expense over the
applicable vesting periods.
Share
Units
The Company has a
share unit plan which provides for the granting of share unit
awards to directors, officers and employees of the Company. The
maximum number of share units that are issuable under the share
unit plan is 15,000,000. Each share unit represents the right to
receive one common share from treasury, subject to the satisfaction
of various time and / or performance conditions.
Under the plan,
all share unit grants, vesting periods and performance conditions
therein are approved by the Company’s board of directors.
Share unit grants are either in the form of RSUs or PSUs. RSUs
granted under the plan, to date, vest ratably over a period of
three years. PSUs granted under the plan, to date, vest ratably
based upon the achievement of certain non-market performance
vesting conditions. PSUs granted in 2018 vest ratably over a period
of five years, PSUs granted in 2019 vest ratably over a period of
four years and PSUs granted in 2020 vest ratably over a period of
three years.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
A continuity
summary of the RSUs of the Company granted under the share unit
plan for 2020 and 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding –
January 1
|
2,754,099
|
$0.70
|
1,200,432
|
$0.65
|
Grants
|
3,345,750
|
0.38
|
1,927,000
|
0.73
|
Exercises (1)
|
(238,949)
|
0.69
|
(373,333)
|
0.70
|
Forfeitures
|
(169,001)
|
0.59
|
-
|
-
|
RSUs outstanding –
December 31
|
5,691,899
|
$0.52
|
2,754,099
|
$0.70
|
RSUs vested
– December 31
|
970,670
|
$0.69
|
303,810
|
$0.65
|
(1)
The weighted average share
price at the date of exercise was CAD$0.56 (2019:
CAD$0.67).
A continuity
summary of the PSUs of the Company granted under the share unit
plan for 2020 and 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs outstanding –
January 1
|
2,140,000
|
$0.65
|
2,200,000
|
$0.65
|
Grants
|
180,000
|
0.38
|
240,000
|
0.69
|
Exercises (1)
|
(120,000)
|
0.65
|
(60,000)
|
0.65
|
Forfeitures
|
(180,000)
|
0.65
|
(240,000)
|
0.65
|
PSUs outstanding –
December 31
|
2,020,000
|
$0.63
|
2,140,000
|
$0.65
|
PSUs vested
– December 31
|
700,000
|
$0.65
|
380,000
|
$0.65
|
(1)
The weighted average share
price at the date of exercise was CAD$0.67 (2019:
CAD$0.67).
The fair value of
each RSU and PSU granted is estimated on the date of grant using
the Company’s closing share price on the day before the grant
date.
19. ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated
other comprehensive income balance consists of:
|
|
|
(in thousands)
|
|
|
|
|
|
Cumulative foreign currency
translation
|
$413
|
$410
|
Unamortized experience gain
– post employment liability
|
|
|
Gross
|
1,847
|
983
|
Tax effect
|
(485)
|
(259)
|
|
$1,775
|
$1,134
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
20. SUPPLEMENTAL
FINANCIAL INFORMATION
The components of
operating expenses are as follows:
(in thousands)
|
|
|
|
|
|
Cost of goods and services
sold:
|
|
|
Cost of goods sold –
mineral concentrates
|
$(526)
|
$-
|
Operating
Overheads:
|
|
|
Mining, other development
expense
|
(1,165)
|
$(2,709)
|
Milling, conversion
expense
|
(1,769)
|
(3,230)
|
Less absorption:
|
|
|
-
Mineral properties
|
39
|
61
|
Cost of services
|
(6,852)
|
(8,346)
|
Cost of goods and services
sold
|
(10,273)
|
(14,224)
|
Reclamation asset
amortization
|
(243)
|
(212)
|
Selling expenses
|
(14)
|
-
|
Sales royalties and
non-income taxes
|
(64)
|
-
|
Operating
expenses
|
$(10,594)
|
$(14,436)
|
The components of
other income (expense) are as follows:
(in thousands)
|
|
|
|
|
|
Gains (losses)
on:
|
|
|
Foreign exchange
|
$(529)
|
$2
|
Disposal of property, plant
and equipment
|
405
|
(37)
|
Investment fair value through
profit (loss) (note 7)
|
5,046
|
(1,085)
|
Deconsolidation of investment
in associate (note 8)
|
-
|
5,267
|
Reclamation obligation
adjustments (note 13)
|
(3,595)
|
(845)
|
Debt obligation adjustments
(note 14)
|
2
|
26
|
Legal settlement (note
24)
|
(850)
|
-
|
Other
|
(574)
|
(358)
|
Other income
(expense)
|
$(95)
|
$2,970
|
The components of
finance income (expense) are as follows:
(in thousands)
|
|
|
|
|
|
Interest income
|
$291
|
$594
|
Interest expense
|
(4)
|
(9)
|
Accretion
expense:
|
|
|
Deferred revenue (note
11)
|
(3,058)
|
(3,203)
|
Post-employment benefits
(note 12)
|
(57)
|
(70)
|
Reclamation
obligations (note 13)
|
(1,352)
|
(1,361)
|
Debt
obligations (note 14)
|
(56)
|
(76)
|
Finance
expense, net
|
$(4,236)
|
$(4,125)
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
A summary of
depreciation expense recognized in the statement of income (loss)
is as follows:
(in thousands)
|
|
|
|
|
|
Operating
expenses:
|
|
|
Mining, other development
expense
|
$(3)
|
$(3)
|
Milling, conversion
expense
|
(1,730)
|
(3,165)
|
Cost of services
|
(192)
|
(248)
|
Exploration and
evaluation
|
(184)
|
(221)
|
General and
administrative
|
(126)
|
(127)
|
Depreciation
expense-gross (note 10)
|
$(2,235)
|
$(3,764)
|
A summary of
employee benefits expense recognized in the statement of income
(loss) is as follows:
(in thousands)
|
|
|
|
|
|
Salaries and
short-term employee benefits
|
$(7,405)
|
$(8,407)
|
Share-based
compensation (note 20)
|
(1,827)
|
(2,222)
|
Termination
benefits
|
(35)
|
(633)
|
Employee
benefits expense-gross
|
$(9,267)
|
$(11,262)
|
A summary of
lease related amounts recognized in the statement of income (loss)
is as follows:
(in thousands)
|
|
|
|
|
|
Accretion
expense on lease liabilities
|
$(56)
|
$(76)
|
Expenses
relating to short-term leases
|
(2,287)
|
(5,146)
|
Expenses
relating to non-short term low-value leases
|
(13)
|
(19)
|
Lease related
expense-gross
|
$(2,356)
|
$(5,241)
|
The change in
non-cash working capital items in the consolidated statements of
cash flows is as follows:
(in thousands)
|
|
|
|
|
|
Change in non-cash working
capital items:
|
|
|
Trade and other
receivables
|
$649
|
$(201)
|
Inventories
|
220
|
232
|
Prepaid expenses and other
assets
|
(422)
|
(160)
|
Accounts payable and accrued
liabilities
|
(754)
|
2,385
|
Change in
non-cash working capital items
|
$(307)
|
$2,256
|
The supplemental
cash flow disclosure required for the consolidated statements of
cash flows is as follows:
(in thousands)
|
|
|
|
|
|
|
|
Supplemental cash flow
disclosure:
|
|
|
|
Interest paid
|
$
|
$(4)
|
(9)
|
Income taxes
paid
|
|
-
|
-
|
|
|
|
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
21. SEGMENTED
INFORMATION
Business
Segments
The Company
operates in three primary segments – the Mining segment, the
Closed Mine 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 Closed Mine
Services segment includes the results of the Company’s
environmental services business which provides mine decommissioning
and other services to third parties. The Corporate and Other
segment includes management fee income earned from UPC and general
corporate expenses not allocated to the other segments. Management
fee income has been included in the same segment as general
corporate expenses due to the shared infrastructure between the two
activities.
For the year
ended December 31, 2020, reportable segment results were as
follows:
(in thousands)
|
|
|
|
|
|
|
|
|
|
Statement
of Operations:
|
|
|
|
|
Revenues
|
3,614
|
8,205
|
2,604
|
14,423
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Operating
expenses
|
(3,742)
|
(6,849)
|
(3)
|
(10,594)
|
Exploration and
evaluation
|
(9,032)
|
-
|
-
|
(9,032)
|
General and
administrative
|
(19)
|
-
|
(7,590)
|
(7,609)
|
|
(12,793)
|
(6,849)
|
(7,593)
|
(27,235)
|
Segment income
(loss)
|
(9,179)
|
1,356
|
(4,989)
|
(12,812)
|
|
|
|
|
|
Revenues
– supplemental:
|
|
|
|
|
Uranium concentrate
sales
|
852
|
-
|
-
|
852
|
Environmental
services
|
-
|
8,205
|
-
|
8,205
|
Management fees
|
-
|
-
|
2,604
|
2,604
|
Toll milling
services–deferred revenue (note 11)
|
2,762
|
-
|
-
|
2,762
|
|
3,614
|
8,205
|
2,604
|
14,423
|
|
|
|
|
|
Capital
additions:
|
|
|
|
|
Property, plant and equipment
(note 10)
|
289
|
15
|
-
|
304
|
|
|
|
|
|
Long-lived
assets:
|
|
|
|
|
Plant and
equipment
|
|
|
|
|
Cost
|
101,540
|
4.546
|
892
|
106,978
|
Accumulated
depreciation
|
(26,241)
|
(3,194)
|
(416)
|
(29,851)
|
Mineral
properties
|
179,743
|
-
|
-
|
179,743
|
|
255,042
|
1,352
|
476
|
256,870
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
For the year
ended December 31, 2019, reportable segment results were as
follows:
(in thousands)
|
|
|
|
|
|
|
|
|
|
Statement
of Operations:
|
|
|
|
|
Revenues
|
4,609
|
8,974
|
1,966
|
15,549
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Operating
expenses
|
(6,090)
|
(8,346)
|
-
|
(14,436)
|
Exploration and
evaluation
|
(15,238)
|
-
|
-
|
(15,238)
|
General and
administrative
|
(17)
|
-
|
(7,794)
|
(7,811)
|
|
(21,345)
|
(8,346)
|
(7,794)
|
(37,485)
|
Segment income
(loss)
|
(16,736)
|
628
|
(5,828)
|
(21,936)
|
|
|
|
|
|
Revenues
– supplemental:
|
|
|
|
|
Environmental
services
|
-
|
8,974
|
-
|
8,974
|
Management fees
|
-
|
-
|
1,966
|
1,966
|
Toll milling
services–deferred revenue (note 11)
|
4,609
|
-
|
-
|
4,609
|
|
4,609
|
8,974
|
1,966
|
15,549
|
|
|
|
|
|
Capital
additions:
|
|
|
|
|
Property, plant and equipment
(note 10)
|
637
|
273
|
38
|
948
|
|
|
|
|
|
Long-lived
assets:
|
|
|
|
|
Plant and
equipment
|
|
|
|
|
Cost
|
99,994
|
4,591
|
908
|
105,493
|
Accumulated
depreciation
|
(24,349)
|
(3,062)
|
(304)
|
(27,715)
|
Mineral
properties
|
179,481
|
-
|
-
|
179,481
|
|
255,126
|
1,529
|
604
|
257,259
|
Revenue
Concentration
The
Company’s business is such that, at any given time, it sells
its environmental and other services to a relatively small number
of customers. During 2020, one customer from the corporate and
other segment, three customers from the Closed Mines Group segment
and one customer from the mining segment accounted for
approximately 94% of total revenues consisting of 18%, 57% and 19%
respectively. During 2019, one customer from the Corporate and
Other segment, three customers from the Closed Mine Services
segment and one customer from the Mining segment accounted for
approximately 99% of total revenues consisting of 13%, 56% and 30%
respectively.
Revenue
Commitments
Denison’s
revenue portfolio consists of short and long-term sales
commitments. The following table summarizes the expected future
revenue, by segment, based on the customer contract commitments and
information that exists as at December 31, 2020:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
– by Segment:
|
|
|
|
|
|
|
Closed Mines
Group
|
|
|
|
|
|
|
Environmental
services
|
4,751
|
-
|
-
|
-
|
-
|
4,751
|
Corporate and
Other
|
|
|
|
|
|
|
Management fees
|
2,186
|
2,186
|
2,186
|
547
|
-
|
7,105
|
Total Revenue
Commitments
|
6,937
|
2,186
|
2,186
|
547
|
-
|
11,856
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The amounts in
the table above represent the estimated consideration that Denison
will be entitled to receive when it satisfies the remaining
performance obligations in its customer contracts. Various
assumptions, consistent with past experience, have been made where
the quantity of the performance obligation may vary.
In addition to
the amounts disclosed above, the Company is also contracted to pay
onward to APG all toll milling cash proceeds received from the MLJV
related to the processing of specified Cigar Lake ore through the
McClean Lake mill (see note 11). The timing and amount of such
future toll milling cash proceeds are outside the control of the
Company.
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:
(in thousands)
|
|
|
|
|
|
Management fees:
|
|
|
Base and variable
fees
|
$2,011
|
$1,822
|
Discretionary
fees
|
300
|
-
|
Commission fees
|
293
|
144
|
|
$2,604
|
$1,966
|
At December 31,
2020, accounts receivable includes $265,000 (December 31, 2019:
$236,000) due from UPC with respect to the fees and transactions
indicated above.
Korea
Electric Power Corporation (“KEPCO”) and Korea Hydro
& Nuclear Power (“KHNP”)
In connection
with KEPCO’s investment in Denison in June 2009, KEPCO and
Denison were parties to a strategic relationship agreement. In
December 2016, Denison was notified that KEPCO’s indirect
ownership of Denison’s shares had been transferred from an
affiliate of KEPCO to an affiliate of KEPCO’s wholly-owned
subsidiary, KHNP. In September 2017, Denison and KHNP’s
affiliate entered into an amended and restated strategic
relationship agreement, in large part providing KHNP’s
affiliate with the same rights as those previously given to KEPCO
under the prior agreement, including entitling KHNP’s
affiliate to: (a) subscribe for additional common shares in
Denison’s future public equity offerings; (b) a right of
first opportunity if Denison intends to sell any of its substantial
assets; (c) a right to participate in certain purchases of
substantial assets which Denison proposes to acquire; and (d) a
right to nominate one director to Denison’s board so long as
its share interest in Denison is above 5.0%.
As at December
31, 2020, KEPCO, through its subsidiaries, holds 58,284,000 shares
of Denison representing a share interest of approximately 8.58%.
KHNP Canada Energy Ltd (“KHNP Canada”), a subsidiary of
KHNP, is the holder of the majority of Denison’s
shares.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
KHNP Canada is
also the majority member of the Korea Waterbury Uranium Limited
Partnership (“KWULP”). KWULP is a consortium of
investors that holds the non-Denison owned interests in Waterbury
Lake Uranium Corporation (“WLUC”) and the WLULP,
entities whose key asset is the Waterbury Lake property. At
December 31, 2020, WLUC is owned by Denison Waterbury Corp. (60%)
and KWULP (40%) while the WLULP is owned by Denison Waterbury Corp.
(66.89% - limited partner), KWULP (33.09% - limited partner) and
WLUC (0.02% - general partner). When a spending program is
approved, each participant is required to fund these entities based
upon its respective ownership interest or be diluted accordingly.
Spending program approval requires 75% of the limited
partners’ voting interest.
In January 2014,
Denison agreed to allow KWULP to defer a decision regarding its
funding obligation to WLUC and WLULP until September 30, 2015 and
to not be immediately diluted as per the dilution provisions in the
relevant agreements (“Dilution Agreement”). Instead,
under the Dilution Agreement, dilution would be delayed until
September 30, 2015 and then applied in each subsequent period, if
applicable, in accordance with the original agreements. In
exchange, Denison received authorization to approve spending
programs on the property, up to an aggregate $10,000,000, until
September 30, 2016 without obtaining approval from 75% of the
voting interest. Under subsequent amendments, Denison and KWULP
have agreed to extend Denison’s authorization under the
Dilution Agreement to approve program spending up to an aggregate
$15,000,000 until December 31, 2021.
In 2019, Denison
funded 100% of the approved fiscal 2019 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 65.92% to
66.57%, in two steps, which has been accounted for using effective
dates of May 31, 2019 and November 30, 2019. The increased
ownership interest resulted in Denison recording its increased
pro-rata share of the assets and liabilities of Waterbury Lake, the
majority of which relates to an addition to mineral property assets
of $448,000.
In 2020, Denison
funded 100% of the approved fiscal 2020 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 66.57% to
66.90%, in two steps, which has been accounted for using effective
dates of June 30, 2020 and November 30, 2020. The increased
ownership interest resulted in Denison recording its increased
pro-rata share of the assets and liabilities of Waterbury Lake, the
majority of which relates to an addition to mineral property assets
of $223,000.
Other
In December 2018,
the Company lent $250,000 to GoviEx pursuant to a credit agreement
between the parties. 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 2020, the
Company incurred investor relations, administrative service fees
and certain pass-through expenses of $206,000 (2019: $217,000) with
Namdo Management Services Ltd, which shares a common director with
Denison. These services were incurred in the normal course of
operating a public company. At December 31, 2020, an amount of $nil
(December 31, 2019: $nil) was due to this company.
Compensation
of Key Management Personnel
Key management
personnel are those persons having authority and responsibility for
planning, directing and controlling the activities of the Company,
directly or indirectly. Key management personnel includes the
Company’s executive officers, vice-presidents and members of
its Board of Directors.
The following
compensation was awarded to key management personnel:
(in thousands)
|
|
|
|
|
|
Salaries and short-term
employee benefits
|
$(1,899)
|
$(2,024)
|
Share-based
compensation
|
(1,507)
|
(1,881)
|
Termination
benefits
|
-
|
(481)
|
Key
management personnel compensation
|
$(3,406)
|
$(4,386)
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
23. CAPITAL
MANAGEMENT AND FINANCIAL RISK
Capital
Management
The
Company’s capital includes cash, cash equivalents,
investments in debt instruments, investments in equity instruments
and the current portion of debt obligations. The Company’s
primary objective with respect to its capital management is to
ensure that it has sufficient capital to maintain its ongoing
operations, to provide returns for shareholders and benefits for
other stakeholders and to pursue growth opportunities.
Planning, annual
budgeting and controls over major investment decisions are the
primary tools used to manage the Company’s capital. The
Company’s cash is managed centrally and disbursed to the
various business units based on a system of internal controls that
require review and approval of significant expenditures by the
Company’s key decision makers. For example, under the
Company’s delegation of authority guidelines, significant
debt obligations require the approval of both the CEO and the CFO
before they are entered into.
The Company
currently manages its capital by ongoing monitoring and review of
its net cash and investment position, as well as its operating
plans for the current and future periods. The Company’s net
cash and investment position is summarized below:
|
|
|
(in thousands)
|
|
|
|
|
|
Net cash and
investments:
|
|
|
Cash and cash
equivalents
|
$24,992
|
$8,190
|
Investments
|
16,950
|
12,104
|
Debt obligations-current
(note 14)
|
(240)
|
(470)
|
Net cash and
investments
|
$41,702
|
$19,824
|
Financial
Risk
The Company
examines the various financial risks to which it is exposed and
assesses the impact and likelihood of those risks. These risks may
include credit risk, liquidity risk, currency risk, interest rate
risk and price risk.
Credit risk is
the risk of loss due to a counterparty’s inability to meet
its obligations under a financial instrument that will result in a
financial loss to the Company. The Company believes that the
carrying amount of its cash and cash equivalents, trade and other
receivables and restricted cash and investments represents its
maximum credit exposure.
The maximum
exposure to credit risk at the reporting dates is as
follows:
|
|
|
(in
thousands)
|
|
|
|
|
|
Cash and cash
equivalents
|
$24,992
|
$8,190
|
Trade and other
receivables
|
3,374
|
4,023
|
Restricted cash and
investments
|
12,018
|
11,994
|
|
$40,384
|
$24,207
|
The Company
limits cash and cash equivalents and restricted cash and investment
risk by dealing with credit worthy financial institutions. The
majority of the Company’s normal course trade and other
receivables balance relates to a small number of customers whom
have established credit worthiness with the Company through past
dealings.
Liquidity risk is
the risk that the Company will encounter difficulties in meeting
obligations associated with its financial liabilities as they
become due. The Company has in place a planning and budgeting
process to help determine the funds required to support the
Company’s normal operating requirements on an ongoing basis.
The Company ensures that there is sufficient committed capital to
meet its short-term business requirements, taking into account its
anticipated cash flows from operations, its holdings of cash and
cash equivalents
and equity investments, its financial covenants and its
access to credit and capital markets, if required.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
The maturities of
the Company’s financial liabilities at December 31, 2020 are
as follows:
(in
thousands)
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$7,178
|
$-
|
Debt obligations (note
14)
|
240
|
375
|
|
$7,418
|
$375
|
Foreign exchange
risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in foreign
exchange rates. The Company predominantly operates in Canada and
incurs the majority of its operating and capital costs in Canadian
dollars. At December 31, 2020, the Company is exposed to some
foreign exchange risk on its net U.S dollar financial asset
position, predominantly as a result of U.S dollar financing
activity completed in the fourth quarter of 2020.
At December 31,
2020, the Company’s net U.S dollar financial assets were
$10,191,000. The impact of the U.S dollar strengthening or
weakening (by 10%) on the value of the Company’s net U.S
dollar financial assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands
except foreign exchange rates)
|
|
|
|
Currency
risk
|
|
|
|
Canadian dollar
(“CAD”) weakens
|
1.2732
|
1.4005
|
$1,019
|
Canadian dollar
(“CAD”) strengthens
|
1.2732
|
1.1459
|
$(1,019)
|
|
|
|
|
Currently, the
Company does not have any programs or instruments in place to hedge
this possible currency risk.
Interest rate
risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
interest rates. The Company is exposed to interest rate risk on its
liabilities through its outstanding borrowings and on its assets
through its investments in debt instruments. The Company monitors
its exposure to interest rates and has not entered into any
derivative contracts to manage this risk.
The Company is
exposed to equity price risk on its investments in equity
instruments of other exploration and mining companies. The
sensitivity analysis below illustrates the impact of equity price
risk on the equity investments held by the Company at December 31,
2020:
|
|
|
|
(in thousands)
|
|
|
|
Equity price
risk
|
|
10% increase in equity
prices
|
$1,709
|
10% decrease in equity
prices
|
(1,709)
|
|
|
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
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.
The fair value of
financial instruments which trade in active markets, such as share
and warrant equity instruments, is based on quoted market prices at
the balance sheet date. The quoted market price used to value
financial assets held by the Company is the current closing price.
Warrants that do not trade in active markets have been valued using
the Black-Scholes pricing model. Debt instruments have been valued
using the effective interest rate for the period that the Company
expects to hold the instrument and not the rate to
maturity.
Except as
otherwise disclosed, the fair values of cash and cash equivalents,
trade and other receivables, accounts payable and accrued
liabilities, restricted cash and cash equivalents and debt
obligations approximate their carrying values as a result of the
short-term nature of the instruments, the variable interest rate
associated with the instruments or the fixed interest rate of the
instruments being similar to market rates.
During 2020 and
2019, there were no transfers between levels 1, 2 and 3 and there
were no changes in valuation techniques, however, the Company did
change its method of accounting for its GoviEx investment from the
equity method to FVTPL in the fourth quarter of 2019.
The following
table illustrates the classification of the Company’s
financial assets within the fair value hierarchy as at December 31,
2020 and December 31, 2019:
|
Financial
|
Fair
|
|
|
|
Instrument
|
Value
|
|
|
(in thousands)
|
Category(1)
|
Hierarchy
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
Cash and
equivalents
|
Category
B
|
|
$24,992
|
$8,190
|
Trade and other
receivables
|
Category
B
|
|
3,374
|
4,023
|
Investments
|
|
|
|
|
Equity
instruments-shares
|
Category
A
|
Level
1
|
16,657
|
11,971
|
Equity
instruments-warrants
|
Category
A
|
Level
2
|
293
|
133
|
Restricted
cash and equivalents
|
|
|
|
|
Elliot Lake
reclamation trust fund
|
Category
B
|
|
2,883
|
2,859
|
Credit
facility pledged assets
|
Category
B
|
|
9,000
|
9,000
|
Reclamation
letter of credit collateral
|
Category
B
|
|
135
|
135
|
|
$57,334
|
$36,311
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
Account
payable and accrued liabilities
|
Category
C
|
|
7,178
|
7,930
|
Debt
obligations
|
Category
C
|
|
615
|
1,002
|
|
$7,793
|
$8,932
|
(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.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
24. COMMITMENTS
AND CONTINGENCIES
General
Legal Matters
The Company is
involved, from time to time, in various legal actions and claims in
the ordinary course of business. In the opinion of management, the
aggregate amount of any potential liability is not expected to have
a material adverse effect on the Company’s financial position
or results.
Specific
Legal Matters
Mongolia
Mining Division Sale – Arbitration Proceedings with Uranium
Industry a.s
In November 2015,
the Company sold all of its mining assets and operations located in
Mongolia to Uranium Industry a.s (“UI”) pursuant to an
amended and restated share purchase agreement (the “GSJV
Agreement”). The primary assets at that time were the
exploration licenses for the Hairhan, Haraat, Gurvan Saihan and
Ulzit projects. As consideration for the sale per the GSJV
Agreement, the Company received cash consideration of USD$1,250,000
prior to closing and the rights to receive additional contingent
consideration of up to USD$12,000,000.
On September 20,
2016, the Mineral Resources Authority of Mongolia
(“MRAM”) formally issued mining license certificates
for all four projects, triggering Denison’s right to receive
contingent consideration of USD$10,000,000 (collectively, the
“Mining License Receivable”). The original due date for
payment of the Mining License Receivable by UI was November 16,
2016.
Under an
extension agreement between UI and the Company, the payment due
date of the Mining License Receivable was extended from November
16, 2016 to July 16, 2017 (the “Extension Agreement”).
As consideration for the extension, UI agreed to pay interest on
the Mining License Receivable amount at a rate of 5% per year,
payable monthly up to July 16, 2017 and they also agreed to pay a
USD$100,000 instalment amount towards the balance of the Mining
License Receivable amount. The required payments were not
made.
On February 24,
2017, the Company served notice to UI that it was in default of its
obligations under the GSJV Agreement and the Extension Agreement
and 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. Hearings in front
of the arbitration panel were held in December 2019. The final
award was rendered by an arbitration panel on July 27, 2020, with
the panel finding in favour of Denison and ordering UI to pay the
Company USD$10,000,000 plus interest at a rate of 5% per annum from
November 16, 2016, plus certain legal and arbitration costs.
Denison and UI have exchanged correspondence, and award recovery
options are being considered.
Arbitration
Proceedings with Orano Canada Inc. (“Orano Canada”) and
OURD (Canada) Co., Ltd. (“OURD”)
Denison commenced
arbitration with Orano Canada and OURD in October 2019, with
Denison’s initial written submission made on March 9, 2020.
Denison claimed that certain payments it was required to make
related to matters outside the scope of the joint venture agreement
for the MLJV. Proceedings in front of the arbitration panel were
held in October 2020 and the panel released its decision in
December 2020, finding in favour of Orano Canada and OURD on the
facts. A settlement was agreed amongst the parties whereby Denison
would pay $850,000 in respect of legal fees and expenses incurred
by Orano Canada and OURD. This amount has been accrued as a payable
at year end and is included in Other income (expense) in 2020.
Denison paid the settlement amount in January 2021.
Performance
Bonds and Letters of Credit
In conjunction
with various contracts, reclamation and other performance
obligations, the Company may be required to issue performance bonds
and letters of credit as security to creditors to guarantee the
Company’s performance. Any potential payments which might
become due under these items would be related to the
Company’s non-performance under the applicable contract. As
at December 31, 2020, the Company had outstanding letters of credit
of $24,135,000 for reclamation obligations of which $24,000,000 is
collateralized by the Company’s 2020 credit facility (see
note 14) and the remainder is collateralized by cash (see note
9).
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
25. INTEREST
IN OTHER ENTITIES
The significant
subsidiaries, associates and joint operations of the Company at
December 31, 2020 are listed below. The table also includes
information related to key contractual arrangements associated with
the Company’s mineral property interests that comprise 90.5%
of the December 31, 2020 carrying value of its Mineral Property
assets (see note 10). The company does not have any accounting
joint ventures as defined by IFRS 11.
|
|
|
December
|
December
|
Fiscal
|
|
|
|
Place
|
31,
2020
|
31,
2019
|
2020
|
|
|
|
Of
|
Ownership
|
Ownership
|
Participating
|
Accounting
|
|
|
Business
|
Interest (1)
|
Interest (1)
|
Interest (2)
|
Method
|
Subsidiaries
|
|
|
|
|
|
|
Denison Mines
Inc.
|
|
Canada
|
100.00%
|
100.00%
|
N/A
|
Consolidation
|
Denison AB
Holdings Corp.
|
|
Canada
|
100.00%
|
100.00%
|
N/A
|
Consolidation
|
Denison
Waterbury Corp
|
|
Canada
|
100.00%
|
100.00%
|
N/A
|
Consolidation
|
9373721
Canada Inc.
|
|
Canada
|
100.00%
|
100.00%
|
N/A
|
Consolidation
|
Denison Mines
(Bermuda) I Ltd
|
|
Bermuda
|
100.00%
|
100.00%
|
N/A
|
Consolidation
|
|
|
|
|
|
|
|
Joint Operations
|
|
|
|
|
|
Waterbury Lake
Uranium Corp
|
|
Canada
|
60.00%
|
60.00%
|
100%
|
Voting Share (3)
|
Waterbury Lake
Uranium LP
|
|
Canada
|
66.90%
|
66.57%
|
100%
|
Voting Share (3)
|
|
|
|
|
|
|
|
Key Contractual Arrangements
|
|
|
|
|
|
|
Wheeler River
Joint Venture
|
|
Canada
|
90.00%
|
90.00%
|
90.00%
|
Denison Share (3)
|
Midwest Joint
Venture
|
|
Canada
|
25.17%
|
25.17%
|
25.17%
|
Denison Share (3)
|
Mann Lake
Joint Venture
|
|
Canada
|
30.00%
|
30.00%
|
N/A (4)
|
Denison Share (3)
|
Wolly Joint
Venture
|
|
Canada
|
21.89%
|
21.89%
|
N/A (4)
|
Denison Share (3)
|
McClean Lake
Joint Venture
|
|
Canada
|
22.50%
|
22.50%
|
22.50%
|
Denison Share (3)
|
(1)
Ownership Interest represents
Denison’s percentage equity / voting interest in the entity
or contractual arrangement;
(2)
Participating interest
represents Denison’s percentage funding contribution to the
particular joint operation or contractual arrangement. This
percentage can differ from ownership interest in instances where
other parties to the arrangement have carried interests, they are
earning-in to the arrangement, or they are diluting their interest
in the arrangement (provided the arrangement has dilution
provisions therein);
(3)
Denison Share is where
Denison accounts for its share of assets, liabilities, revenues and
expenses in accordance with the specific terms within the
contractual arrangement. – this can be by using either its
ownership interest (i.e. Voting Share) or its participating
interest (i.e. Funding Share), depending on the arrangement terms.
The Voting Share and Funding Share approaches produce the same
accounting result when the Company’s ownership interest and
participating interests are equal;
(4)
The participating interest
for 2020 for these arrangements is shown as Not Applicable as there
were no approved spending programs carried out during fiscal
2020.
WLUC and WLULP
were acquired by Denison as part of the Fission Energy Corp
acquisition in April 2013. Denison uses its equity interest to
account for its share of assets, liabilities, revenues and expenses
for these joint operations. In 2020, Denison funded 100% of the
activities in these joint operations pursuant to the terms of an
agreement that allows it to approve spending for the WLULP without
having the required 75% of the voting interest (see note
22).
26. SUBSEQUENT
EVENTS
Bank of
Nova Scotia Credit Facility Renewal
On January 14,
2021, the Company entered into an amending agreement with BNS to
extend the maturity date of the 2020 Facility (see note 14). Under
the facility amendment, the maturity date has been extended to
January 31, 2022 (the “2021 Facility”). All other
terms of the 2021 Facility (tangible net worth covenant, pledged
cash, investments amounts and security for the facility) remain
unchanged from those of the 2020 Facility, and the Company
continues to have access to credit up to $24,000,000 the use of
which is restricted to non-financial letters of credit in support
of reclamation obligations.
The 2021 Facility
remains subject to letter of credit and standby fees of 2.40%
(0.40% on the $9,000,000 covered by pledged cash collateral) and
0.75% respectively.
|
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
At-the-Market
(“ATM”) Share Issue Program Activity
Subsequent to
year-end, Denison, through its agents, issued 4,230,186 common
shares under its ATM program at an average price of $0.93 per share
for aggregate gross proceeds of $3,914,000. The Company paid total
commissions of $78,000 resulting in net proceeds
after commissions of $3,836,000. The Company has also
incurred other costs associated with the set-up of the ATM program
which have been deferred on the balance sheet at December 31, 2020
and which will be recognized as share issue expenses in
2021.
Public
Unit Offering Issue
On February 19,
2021, the Company completed a public offering by way of a
prospectus supplement to the 2020 Shelf Prospectus of
31,593,950 units of the Company at USD$0.91 per unit for gross
proceeds of $36,266,000 (USD$28,750,000), including the full
exercise of the underwriters’ over-allotment option,
accounting for 4,120,950 units. Each unit consists of one common
share and one-half of one transferable common share purchase
warrant of the Company. Each full warrant is exercisable to acquire
one common share of the Company at an exercise price of USD$2.00
for 24 months after issuance.
Private
Placement of Flow Through Shares
On March 3, 2021,
the Company completed a private placement of 5,926,000 flow-through
common shares at a price of $1.35 per share for gross proceeds of
approximately $8,000,000. The income tax benefits of this issue
will be renounced to subscribers with an effective date of December
31, 2021.
MANAGEMENT’S DISCUSSION & ANALYSIS
FOR
THE YEAR ENDED DECEMBER 31, 2020
TABLE
OF CONTENTS
|
|
2020 PERFORMANCE
HIGHLIGHTS
|
2
|
ABOUT
DENISON
|
3
|
URANIUM INDUSTRY
OVERVIEW
|
3
|
RESULTS OF
OPERATIONS
|
8
|
Wheeler River Project
|
11
|
Exploration Pipeline
Properties
|
24
|
OUTLOOK FOR
2021
|
32
|
ADDITIONAL
INFORMATION
|
34
|
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
|
49
|
This
Management’s Discussion and Analysis (‘MD&A’)
of Denison Mines Corp. and its subsidiary companies, joint
arrangements, and contractual arrangements (collectively,
‘Denison’ or the ‘Company’) provides a
detailed analysis of the Company’s business and compares its
financial results with those of the previous year. This MD&A is
dated as of March 4, 2021 and should be read in conjunction with
the Company’s audited consolidated financial statements and
related notes for the year ended December 31, 2020. The audited
consolidated financial statements are prepared in accordance with
International Financial Reporting Standards (‘IFRS’) as
issued by the International Accounting Standards Board
(‘IASB’). All dollar amounts in this MD&A are
expressed in Canadian dollars, unless otherwise noted.
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
|
2020 PERFORMANCE
HIGHLIGHTS
■
Significant progress de-risking the Wheeler River project in
2020
In 2020, the
Company made significant progress on systematically de-risking the
technical risks identified for the In-Situ Recovery
(‘ISR’) mining operation for the Phoenix uranium
deposit (‘Phoenix’) following completion of the 2018
Pre-Feasibility Study (‘PFS’) for the Company’s
90% owned Wheeler River Uranium Project (‘Wheeler
River’ or the ‘Project’):
o
Achieved
independent “Proof of Concept” for application of ISR
mining method at Phoenix;
o
Completed
initial core leach tests, reporting uranium concentrations up to
four times the amount assumed in the PFS for the Phoenix ISR
operation;
o
Completed a 2020 ISR Field Program designed
to build additional confidence in the results of the independent
hydrogeologic model developed by Petrotek Corporation
(‘Petrotek’), and to support the design and permitting
of further field work expected to be incorporated into a future
Feasibility Study (‘FS’); and
o
Completed a trade-off study
demonstrating the merit of adopting a freeze wall design, rather
than the freeze “dome” design included in the PFS, as
part of the ISR mining approach planned for Phoenix.
■
Restarted the formal Environmental Assessment (‘EA’)
process for Wheeler River
In January 2021,
Denison restarted the formal EA process for Wheeler River. The
decision to resume the EA process marked the end of the temporary
suspension announced in March 2020 amidst the significant social
and economic disruption that emerged as a result of the onset of
the COVID-19 pandemic.
■
Successful series of equity financings to fund the EA and FS
process for Wheeler River
Denison completed
equity financings for gross proceeds of over US$56 million
(including approximately US$3 million from an At-the-Market
(‘ATM’) offering) in 2020 and early 2021. Subject to a
decision to advance to a formal FS for Phoenix, the proceeds from
the offerings are expected, based on current estimates, to be
sufficient to complete such FS process and the EA
process.
■
Completed flow-through equity financings to fund Canadian
exploration
The Company
completed flow-through equity financings of $8.9 million in late
2020 and early 2021. Proceeds of the financings will be used for
eligible Canadian exploration activities in 2021 and
2022.
■
2020 Phoenix expansion drilling returns best results to date at
Zone C
The primary focus
of the Company’s 2020 exploration drilling program at Wheeler
River centred on the area proximal to the Phoenix deposit with the
potential to expand the extent of mineralization currently
estimated for Phoenix. Expansion drilling in the Zone C area of
Phoenix, which does not currently have an estimate of mineral
resources, returned high grade mineralization – including
5.69% U3O8 over 5.0 metres
in WR-328D1, which represents the best mineralized intersection at
Zone C to date.
■
Discovery of new high-grade uranium mineralization four kilometres
from Phoenix at Wheeler River
As part of the
Company’s 2020 exploration drilling program at Wheeler River,
certain regional target areas were also tested, which resulted in
the discovery of new high-grade unconformity-hosted uranium
mineralization up to 7.66% U3O8 along the K-West
conductive trend.
■
Completed a Preliminary Economic Assessment (‘PEA’)
evaluating the use of ISR at the Tthe Heldeth Túé
(‘THT’, formerly J Zone) deposit on the Waterbury Lake
Property (‘Waterbury’)
On December 30,
2020, Denison filed the technical
report “Preliminary Economic Assessment for the Tthe Heldeth
Túé (J Zone) Deposit, Waterbury Lake Property, Northern
Saskatchewan, Canada”, with an effective date of October 30,
2020 for the 66.90% Denison-owned Waterbury Lake property.
The technical report includes a PEA that demonstrates robust
economics for the potential future development of THT as a
small-scale Athabasca Basin ISR uranium mining project –
including low initial capital costs, low average cash operating
costs and globally competitive all-in costs under US$25 per pound
U3O8.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
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. A 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
contracted to process ore from the Cigar Lake mine under a toll
milling agreement (see RESULTS OF OPERATIONS below for more
details), plus a 25.17% interest in the Midwest deposits and a
66.90% interest in the THT and Huskie deposits on the Waterbury
Lake property. The Midwest, THT 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.
Denison is
engaged in mine decommissioning and environmental services through
its Closed Mines group (formerly Denison Environmental Services),
which manages Denison’s Elliot Lake reclamation projects and
provides post-closure mine and maintenance services to a variety of
industry and government clients.
Denison is also
the manager of Uranium Participation Corporation
(‘UPC’), a publicly traded company listed on the TSX
under the symbol ‘U’, which invests in uranium oxide in
concentrates (‘U3O8’) and
uranium hexafluoride (‘UF6’).
STRATEGY
Denison’s
strategy is focused on leveraging its uniquely diversified asset
base to position the Company to take advantage of the strong
long-term fundamentals of the uranium market. The Company has built
a portfolio of strategic uranium deposits, properties, and
investments highlighted by a 90% interest in Wheeler River and a
minority interest in an operating and licensed uranium milling
facility in the MLJV, both located in the infrastructure rich
eastern portion of the Athabasca Basin region. While active in
exploring for new uranium discoveries in the region,
Denison’s present focus is on advancing Wheeler River to a
development decision, with the potential to become the next large
scale uranium producer in Canada. With a shortage of low cost
uranium development projects in the global project pipeline,
Denison offers shareholders exposure to value creation through the
potential future development of Wheeler River as well as an
anticipated increase in future uranium prices.
URANIUM INDUSTRY
OVERVIEW
Nine years after
the March 2011 Fukushima Daichii nuclear incident occurred, the
uranium market, amongst others, became the focus of unexpected
supply disruptions resulting from the COVID-19 pandemic. In the
case of the uranium market, demand remained relatively steady as
the world responded to the pandemic and nuclear power plants
continued to operate largely without disruption, while the supply
side of the market experienced significant disruptions from the
world’s largest and most influential uranium producers. This
marked the beginning of a meaningful price recovery through the
first part of 2020. The unexpected supply reaction catalyzed by the
pandemic was layered on top of a uranium supply/demand picture that
had already begun to change over the past couple of years, with
demand outstripping supply from primary production and the
shortfall being made up by inventories and other secondary
supplies. As this dynamic has played out, sentiment regarding a
recovery in the uranium price has improved, particularly with the
high-profile shutdown and curtailment of many supply sources across
the industry, including the world’s largest and highest grade
uranium mine, Cameco Corporation’s (‘Cameco’)
McArthur River Mine in northern Saskatchewan, Canada, which was
placed into care and maintenance indefinitely in July
2018.
COVID-19’s
short term effect on uranium supply has been dramatic, with
additional production cuts announced by several of the
world’s largest uranium producers. In March 2020, Cameco and
Orano announced the closure of the lone remaining uranium
production centre in Canada – the Cigar Lake Mine and the
McClean Lake Mill. In April 2020, the world’s largest
producer of uranium, National Atomic Company Kazatomprom
(‘Kazatomprom’), announced that it would reduce
operational activities across all of its uranium mines for an
expected period of three months. Kazatomprom indicated that
production was expected to decrease by up to 4,000 tU (10.4 million
pounds U3O8) over this
period. Together, these supply shocks resulted in the uranium price
quickly rising almost 40%, from a low of US$24.10 in mid-March
2020, to a high of US$34.00 in May 2020.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
In July 2020,
Cameco announced that it would reopen its Cigar Lake mine in
September. This news surprised many market participants and moving
into August the uranium price slowly fell from above US$32.20 at
the time of the announcement, to US$30.65 by month end. The spot
price remained relatively stable for the remainder of the year,
with the market registering the highest ever spot market volumes
for a single year. By the end of December, the spot volume
transacted reached 92.3 million pounds U3O8, breaking the
previous annual spot volume record from 2018 of 88.7 million pounds
U3O8.
In August 2020,
Kazatomprom announced that it had decided to maintain its 20%
reduction in production below the planned levels in its subsoil use
contracts through 2022. Kazatomprom also confirmed that it had
purchased uranium in the spot market and could continue to do so
through the rest of the year. These announcements seemed to help
stabilize general market sentiment following the unexpected restart
of Cigar Lake.
Based on these
events, and other significant COVID-19 related production
disruptions, it is clear that large volumes of inventories and
other secondary supplies were depleted faster than expected in 2020
– essentially accelerating the supply-demand rebalancing that
was put into motion with the shutdown of the McArthur River mine in
2018. This, coupled with the fact that nuclear power plants around
the globe have remained online and using uranium, largely without
disruption, through this difficult period, is expected to help move
the market towards a long-term sustainable price increase sooner
than it otherwise would have, absent COVID-19.
The uranium price
demonstrated stability through the end of 2020, holding between
US$29.00 and US$30.00. In December 2020, Cameco announced another
temporary suspension of production at Cigar Lake as a result of
rising COVID-19 cases in Saskatchewan’s far north. While the
uranium price increased following this decision, the lack of buying
activity as the market slowed for the holiday season seemingly
flattened the impact of the announcement. Entering 2021, the market
will watch closely to see how long Cigar Lake remains shut down and
whether buyers are willing to enter the market before an eventual
restart is announced.
Several trade
issues in the United States (‘US’) have impacted the
nuclear fuel market over the past few years, and the resolution of
those matters in 2020 has brought growing market stability. In
2018, a petition was filed with the US Department of Commerce
(‘DOC’) to investigate the import of uranium into the
US under Section 232 of the 1962 Trade Expansion Act. In July 2019,
the US President ultimately concluded that uranium imports do not
threaten national security and no trade actions were implemented.
In conjunction with this, a further review was ordered of the
nuclear supply chain in the US, and the Nuclear Fuels Working Group
(‘NFWG’) was established. The NFWG reported its
findings in April 2020, which, among other recommendations,
included a plan to budget US$150 million per year, in each of the
next 10 years, for uranium and conversion purchases from US
producers to stock the nation’s strategic reserve. In
December 2020, review and discussion around this matter ended when
the US Congress passed a Bill that included initial funding of
US$75 million to begin building a US uranium reserve. The Bill
passed the US House and Senate with bipartisan support, and was
signed into law in late December, 2020.
The review of the
Agreement Suspending the Antidumping Investigation on Uranium from
the Russian Federation (also known as the Russian Suspension
Agreement or ‘RSA’) also created uncertainty in the
uranium market during 2020, as the RSA was due to expire at the end
of the year. A draft amendment, however, was announced in September
2020 and finalized in October 2020. The new arrangement extends the
agreement until 2040 and aims to reduce US reliance on Russian
uranium products over the next 20 years. The deal negotiated
between the US DOC and Russian government reduces Russian exports
of the enrichment component from the current level of approximately
20% of US enrichment demand to an average of 17% over the 20-year
period, and limits Russian uranium concentrates and conversion
components contained in the enriched uranium product to an average
equivalent of approximately 7% of US enrichment demand. The
agreement’s conclusion brought significant clarity and
stability to many nuclear fuel market participants.
Overall, uranium
demand has grown in recent years as new reactors have been started
around the world and demand now exceeds the annual levels that
existed prior to Japan shutting down all its nuclear units
following the 2011 Fukushima Daichii nuclear incident. At the end
of 2020, there were 436 nuclear reactors operating in 31 countries
and generating 388 GWe – together supplying over 10% of the
world's electrical requirements. In addition, there are 58 nuclear
reactors being constructed in 18 countries, with a number of
countries acting as principal drivers of this expansion, including
China, India, South Korea, Russia, and the United Arab Emirates
(‘UAE’). By 2035, UxC LLC (‘UxC’)
forecasts, under its base case, that operating reactors will
increase to 460, generating around 448 GWe. Through this period,
annual uranium demand is expected to grow from 182 million pounds
U3O8 in 2020 to around
209 million pounds U3O8 by 2035.
Importantly, uncovered utility uranium requirements in this period,
not including typical inventory building, are over 1.4 billion
pounds U3O8.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Early in 2020,
the UxC outlook for annual global uranium production was expected
to be approximately 142 million pounds U3O8. This changed
materially with the curtailment of additional production as a
result of COVID-19. Actual production for 2020 is now estimated by
UxC to have been 123 million U3O8 pounds which has
created an even greater shortfall to 2020 estimated global annual
demand of 182 million pounds U3O8. Though
rebounding a little from 2020, UxC estimates that primary
production in 2021 will remain low at 135 million pounds
U3O8 as COVID-19
restarts are offset by the planned shutdown of long-standing
production sources at Energy Resources of Australia’s Ranger
mine and Orano’s COMINAK project in Niger. With annual demand
projected by UxC to be 174 million pounds U3O8 in 2021, the 2021
differential between primary production and annual demand is
projected to remain high, at approximately 39 million pounds
U3O8.
With primary mine
production in 2020 estimated by UxC to have supplied approximately
67% of the year’s estimated base case demand, the balance of
demand is expected to have been supplied from secondary sources.
These sources include commercial inventories, reprocessing of spent
fuel, sales by uranium enrichers and inventories held by
governments, such as those held by the US Department of Energy, and
the Russian government. Secondary supplies remain a complex aspect
of the uranium market. UxC forecasted that 64 million pounds
U3O8 would enter the
market from secondary supplies in 2020, leaving a surplus of
approximately 5 million pounds U3O8 if the base case
demand scenario of 182 million pounds for 2020 was met –
meaning that the market demand would be met by those secondary
sources of supply and that there would not be an imminent supply
shortage. That being the case, UxC expects that secondary sources
of supply will fall significantly from this level to approximately
20 million pounds U3O8 per year beyond
2030 – which suggests that increased primary sources of
production will be important in the market over the next
decade.
The process of
inventory drawdowns is indicative of a market that is approaching
an inflection point – where the surplus material that has
been easy to procure in past years is diminished and end-users of
uranium begin to question where long-term uranium supplies will
come from and how secure that supply will be over the long lives of
their nuclear reactors. There is a growing sense that market
participants are beginning to look beyond near-term market
conditions in an attempt to understand what the supply environment
will look like in the mid-2020s and beyond. With a renewed focus on
nuclear energy as a critical element in the ‘energy
transition’ that many nations are looking to in order to
battle climate change, it is expected that global utilities will be
looking to source future supply from operations that are not only
low-cost, reliable, and situated in stable jurisdictions (the
typical criteria for a good supplier), but also those which are
flexible and environmentally responsible.
Future and
growing reliance on nuclear energy is again being considered by
policy makers and interest groups around the world. As many
industries were shut down around the globe in 2020 under the strain
of COVID-19 related problems, nuclear electricity generation
worldwide remained steadfast, providing the secure, baseload
electricity needed to drive key infrastructure, including hospitals
– all the while producing little to no carbon emissions.
Building on the growing world view of the reliability and clean
nature of nuclear power, there continued to be many positive news
stories emerging on the demand side of the nuclear fuel market
throughout 2020, including the following:
●
The UAE announced that its
first nuclear power plant, Barakah unit 1 achieved initial
criticality in July 2020. By December, the unit reached 100% power
and is now generating 1400 MW of electricity. Once the other units
are operational, the four-unit plant will generate around 25% of
the UAE’s electricity, preventing the release of up to 21
million tonnes of carbon emissions annually.
●
China National Nuclear Corp
reported, also in July 2020, that Unit 5 at its Tianwan nuclear
power plant attained initial criticality. Construction of the unit
began in December 2015. Unit 6 at the site began construction in
September 2016. Both are expected to attain full commercial
operation before the end of 2021.
●
China continues to be a
bright spot in the industry having recently reiterated in-country
nuclear growth plans. The government indicated that it would build
six to eight nuclear reactors each year between 2020 and 2025 in an
effort to get back on track with past goals – aiming to have
total capacity installed and under construction to be around 200 GW
by 2035. At the end of 2020 China has approximately 49 nuclear
reactors in operation, generating 51 GW, and 12 under construction.
According to China’s Nuclear Energy Association, Chinese
nuclear reactors produced 366.2 TWh of electricity in 2020, which
represents an increase of roughly 5% compared to 2019. Nuclear
power’s share of electricity in China was 4.9% in 2020.
Looking ahead to 2021 China also is anticipated to announce its
14th Five Year Plan in March, which is expected to continue to
emphasize its goals for nuclear energy.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
●
Russia’s Rosatom
reported, in August 2020, that Unit 2 of the Leningrad II plant
successfully reached the minimum controlled power level, meaning
that a controlled, self-sustaining reaction had begun in the new
reactor. The reactor’s commercial operation is set to begin
in 2021.
●
In the US, Southern
Companies’ Georgia Power reached a milestone in the
completion of its new reactor when it took delivery of the first
nuclear fuel for Vogtle unit 3. The AP1000 reactor is approximately
96% complete, with fuel loading expected in April 2021. The company
also added itself to a growing list of US utilities to announce a
commitment to a long-term reduction in greenhouse gas emissions to
net-zero emissions by 2050 – its ability to reach that goal
will be enhanced by completion of its new Vogtle Units 3 &
4.
●
In Canada, following the
recent reconnection of Unit 2 at Ontario Power Generation’s
(‘OPG’) Darlington Nuclear Generating Station, OPG
announced another major milestone in September when work commenced
on the refurbishment of Unit 3 following a brief postponement
related to the COVID-19 pandemic.
●
OPG also added its name to
the list of utilities committing to achieving net-zero carbon
emissions – committing to reach that goal by 2040 and
committing to help the markets in which they operate achieve
net-zero carbon economies by 2050. The company also announced in
November that it would begin advancing plans to locate a small
modular reactor (‘SMR’) at its Darlington site in order
to support its net-zero goals. This built on an earlier
announcement that OPG would leverage its more than 50 years of
nuclear experience to advance engineering and design work with
three grid-scale SMR developers – GE Hitachi Nuclear Energy,
Terrestrial Energy Inc., and X-Energy LLC.
●
The Canadian federal
government also reinforced its support for nuclear energy and the
development of SMRs, as a pillar in its plans for achieving the
country’s climate change goals. Federal energy minister,
Seamus O’Regan, highlighted the importance of nuclear power
multiple times in 2020, including as part of a statement while
releasing Canada’s national SMR Action Plan which calls for
the development, demonstration, and deployment of
SMRs.
●
Positive nuclear news also
emerged from Japan late in 2020 as the country’s new leader,
Prime Minister Yoshihide Suga, pledged that the country will become
carbon neutral by 2050. Japan’s current energy plan, set in
2018, calls for 22-24% of its energy to come from renewables,
20-22% from nuclear power, and 56% from fossil fuels. Suga, did not
provide details on how Japan would reduce carbon emissions to zero,
but said it would promote renewable energy and prioritize safety as
it seeks a bigger role for nuclear.
●
France’s President
Macron indicated that nuclear will remain a key part of the
country’s energy mix, highlighting that the nuclear industry
will remain the cornerstone of France’s strategic autonomy.
Though France has previously said it will cut its reliance on
nuclear energy from 75% to 50% by 2035, it is also considering
building next-generation EPR nuclear reactors.
Reinforcing the
changing global energy landscape, the International Energy Agency
(‘IEA’) released its first Electricity Market Report in
December 2020. The report highlighted growth in renewable
electricity generation at the expense of conventional sources, such
as coal-fired generation, as well as expectations for nuclear power
generation to grow by approximately 2.5% in 2021. The IEA, together
with the OECD’s Nuclear Energy Agency, also showcased the
global competitiveness of nuclear energy as the most dispatchable
low-carbon technology, with the lowest expected costs, in the
report ‘Projected Costs of Generating Electricity
2020’, which also refers to a decline in costs for new
nuclear power plants owing to lessons learned from recent
first-of-a-kind new build projects.
SELECTED ANNUAL FINANCIAL INFORMATION
(in
thousands, except for per share amounts)
|
|
|
|
Year Ended
December 31,
2020
|
|
Year Ended
December 31,
2019
|
|
Year Ended
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
$
|
14,423
|
$
|
15,549
|
$
|
15,550
|
Exploration and
evaluation expenses
|
|
|
$
|
(9,032)
|
$
|
(15,238)
|
$
|
(15,457)
|
Operating
expenses
|
|
|
$
|
(10,594)
|
$
|
(14,436)
|
$
|
(15,579)
|
Impairment
expense
|
|
|
$
|
-
|
$
|
-
|
$
|
(6,086)
|
Net
loss
|
|
|
$
|
(16,283)
|
$
|
(18,141)
|
$
|
(30,077)
|
Basic and diluted
loss per share
|
$
|
(0.03)
|
$
|
(0.03)
|
$
|
(0.05)
|
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
(in
thousands)
|
|
|
|
As at
December 31,
2020
|
|
As at
December 31,
2019
|
|
As at
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
24,992
|
$
|
8,190
|
$
|
23,207
|
|
|
|
|
|
|
|
|
|
Working
capital(1)
|
$
|
37,571
|
$
|
1,597
|
$
|
19,221
|
Property, plant
and equipment
|
$
|
256,870
|
$
|
257,259
|
$
|
258,291
|
Total
assets
|
$
|
320,690
|
$
|
299,998
|
$
|
312,187
|
Total long-term
liabilities(2)
|
$
|
81,565
|
$
|
74,903
|
$
|
77,455
|
(1)
At December 31, 2020, the
Company’s working capital includes $16,657,000 in portfolio
investments and a non-cash deferred revenue liability of $3,478,000
(December 31, 2019 – $nil portfolio investments and non-cash
deferred revenue liability of $4,580,000).
(2)
Predominantly comprised of
the non-current portion of deferred revenue, non-current
reclamation obligations, and deferred income tax
liabilities.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
2020
|
|
2020
|
|
2020
|
|
2020
|
(in
thousands, except for per share amounts)
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
4,094
|
$
|
2,743
|
$
|
2,926
|
$
|
4,660
|
Net
loss
|
$
|
(3,095)
|
$
|
(5,482)
|
$
|
(1,043)
|
$
|
(6,663)
|
Basic and diluted
loss per share
|
$
|
(0.00)
|
$
|
(0.01)
|
$
|
(0.00)
|
$
|
(0.01)
|
|
|
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
(in
thousands, except for per share amounts)
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
3,956
|
$
|
3,478
|
$
|
4,139
|
$
|
3,976
|
Net
loss
|
$
|
(1,498)
|
$
|
(6,424)
|
$
|
(4,884)
|
$
|
(5,335)
|
Basic and diluted
loss per share
|
$
|
(0.00)
|
$
|
(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 mill as well as changes to the estimated
mineral resources of the Cigar Lake mine. See RESULTS OF OPERATIONS
below for further details.
●
Revenues from the Closed
Mines group fluctuate due to the timing of projects, which vary
throughout the year in the normal course of business.
●
Operating expenses fluctuate
due to the timing of projects at both the MLJV and the Closed Mines
group, 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/or summer exploration programs in
Saskatchewan. Due to restrictions related to the COVID-19 pandemic,
the 2020 exploration program did not commence until late in the
third quarter and was completed in December 2020.
●
Denison temporarily suspended
activities related to the EA and other discretionary activities
related to the Wheeler River project late in the first quarter of
2020 due in part to the COVID-19 pandemic. The reduced net loss in
the second quarter of 2020 reflects a significant reduction in
evaluation expenditures resulting from the Company’s response
to COVID-19 and other fiscally prudent measures.
●
The Company’s results
are also impacted, from time to time, by other non-recurring events
arising from its ongoing activities, as discussed below where
applicable.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
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 contracted to process ore from the
Cigar Lake mine under a toll milling agreement. The MLJV is an
unincorporated contractual arrangement between Orano Canada Inc.
(‘Orano Canada’) with a 77.5% interest and Denison with
a 22.5% interest.
In February 2017,
Denison completed a transaction 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.
On March 23,
2020, in response to the COVID-19 pandemic, the operator of the
CLJV announced a decision to suspend production at the Cigar Lake
mine for a minimum of four weeks. At the same time, the operator of
the MLJV announced that the McClean Lake mill would also suspend
operations for the duration of the CLJV shutdown. In April 2020,
the operator of the CLJV announced that the shut-down at the Cigar
Lake mine would be extended for an indeterminate period of time.
Mine and mill operations restarted September 2020, however, in
December 2020, the CLJV announced another temporary suspension of
production at the Cigar Lake mine, and the MLJV announced that the
operations at the mill would again be temporarily suspended. At
this time, the duration of the current suspension is unknown. As
noted above, Denison sold the toll milling revenue to be earned
from the processing of the Cigar Lake ore pursuant to the APG
Arrangement. While the temporary suspension of operations at the
McClean Lake mill has resulted in a decrease in revenue recognized
by Denison, the impact is non-cash and is limited to a reduction in
the drawdown of the Company’s deferred revenue
balance.
During the year
ended December 31, 2020, the McClean Lake mill processed 10.1
million pounds U3O8 for the CLJV
(2019 – 18.0 million pounds U3O8). In 2020, the
Company recorded toll milling revenue of $2,762,000 (2019 –
$4,609,000). The decrease in toll milling revenue in 2020, as
compared to the prior year, is predominantly due to the decrease in
mill production in the current periods resulting from the shut-down
of the Cigar Lake mine, which commenced in late March 2020 and
concluded in mid-September 2020. The current shut-down which
commenced in late December 2020 is ongoing.
During the year
ended December 31, 2020, the Company also recorded accretion
expense of $3,058,000 on the toll milling deferred revenue balance
(2019 – $3,203,000). The annual accretion expense will
decrease over the life of the contract as the deferred revenue
liability decreases over time.
Mineral Sales
Mineral sales
revenue for year ended December 30, 2020 was $852,000 (December 30,
2019 - $nil). Mineral sales revenue was earned in the first quarter
of 2020 from the sale of 26,004 pounds U3O8 from inventory at
an average price of $32.76 per pound.
Closed Mines Services
Mine
decommissioning and environmental services are provided through
Denison’s Closed Mines group, which has provided long-term
care and maintenance for closed mine sites since 1997. With offices
in Ontario, the Yukon Territory and Quebec, the Closed Mines group
manages Denison’s Elliot Lake reclamation projects and
provides post-closure mine care and maintenance services to various
customers.
Revenue from
Closed Mines services during 2020 was $8,205,000 (2019 -
$8,974,000). The decrease in revenue in 2020, as compared to 2019,
was due to a decrease in activity at certain care and maintenance
sites.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Management Services Agreement with UPC
Denison provides
general administrative and management services to UPC pursuant to a
management services agreement. The current agreement has an
effective date of April 1, 2019 and is for a five year term.
Management fees and commissions earned by Denison provide a source
of cash flow to partly offset corporate administrative expenditures
incurred by the Company.
During 2020,
revenue from the Company’s management contract with UPC was
$2,604,000 (2018 - $1,966,000). The increase in revenues during the
year ended December 31, 2020, compared to the prior year, was due
to an increase in management fees earned based on UPC’s
monthly net asset value (‘NAV’), an increase in
commission-based management fees, as well as an increase in
discretionary management fees due to a $300,000 fee awarded to
Denison related to non-routine activities performed by the Company.
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 increase in NAV-based
management fees in the year ended December 31, 2020 was due to the
increase in the average fair value of UPC’s uranium holdings,
resulting from higher uranium spot prices during the second, third
and fourth quarters of 2020. Denison earns a 1% commission on the
gross value of UPC’s uranium purchases and sales. The
increase in commission-based management fees during the year ended
December 31, 2020 was due to an increase in uranium purchase and
sales transactions, as compared to the prior year.
OPERATING EXPENSES
Mining
Operating
expenses of the mining segment include depreciation and development
costs, as well as cost of sales related to the sale of
uranium.
Operating
expenses in 2020 were $3,742,000 (2019 - $6,090,000). In 2020,
operating expenses included depreciation of the McClean Lake mill
of $1,730,000 (2019 - $3,165,000), as a result of processing
approximately 10.1 million pounds U3O8 for the CLJV
(2019 – 18.0 million pounds). The decrease in depreciation
during 2020 was primarily due to the decrease in production by the
McClean Lake mill (see above).
In 2020,
operating expenses also included development and other operating
costs related to the MLJV of $2,011,000 (2019 – $2,925,000).
The development and other operating costs for 2020 include $922,000
in costs related to 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, as well as $526,000 in cost of sales, selling
expenses of $14,000, and sales royalties and resource surcharges of
$64,000 related to the sale of 26,004 pounds of U3O8. As a result of
the COVID-19 pandemic, the operator of the MLJV decided to defer
the completion of the SABRE mining test, which was originally
planned for 2020, until 2021.
Closed Mines Services
Operating
expenses during 2020 totaled $6,849,000 (2019 - $8,346,000). The
expenses relate primarily to care and maintenance services provided
to clients, and include labour and other costs. The decrease in
operating expenses in 2020, compared to 2019, is predominantly due
to a reduction in activity at certain care and maintenance sites,
as well as a decrease in salaries and other costs associated with a
reduction in headcount following a restructuring completed during
the fourth quarter of 2019, when the Company discontinued its
environmental consulting business.
CANADIAN MINERAL PROPERTY EXPLORATION & EVALUATION
The Company
continues to focus on its high priority projects in the Athabasca
Basin region in Saskatchewan. Denison’s share of exploration
and evaluation expenditures in 2020 was $9,032,000 (2019 –
$15,238,000). During 2020, the Company’s exploration and
evaluation expenditures decreased, primarily due to a drop in
evaluation expenditures due to the decision, in March 2020, to
temporarily suspend the EA program and other discretionary
activities at Wheeler River, as a result of the Company’s
response to the COVID-19 pandemic. See WHEELER RIVER PROJECT below
for further details.
Exploration
spending in the Athabasca Basin is generally seasonal in nature,
with spending typically higher during the winter field season
(January to mid-April) and summer field season (June to
mid-October). Due to the COVID-19 pandemic, the timing of
exploration expenditures in 2020 is slightly different than in past
years, with the majority of expenditures deferred until late in the
third quarter and the fourth quarter.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The following
tables summarize the exploration and evaluation activities
completed during 2020. The exploration drilling relates to the
Company’s exploration program at Wheeler River, while the
evaluation drilling relates to the installation of regional
groundwater sampling holes as part of the Wheeler River 2020 Field
Program.
All exploration
and evaluation expenditure information in this MD&A covers the
twelve months ending December 31, 2020.
CANADIAN EXPLORATION ACTIVITIES
|
Property
|
Denison’s
ownership(1)
|
Exploration
drilling(6)
|
Other activities
|
Wheeler
River
|
90%(2)
|
11,874 m (29
holes)
|
-
|
|
Waterbury
Lake
|
66.90%(3)
|
-
|
Geophysical
surveys
|
|
Murphy
Lake
|
100%
|
-
|
Geophysical
surveys
|
|
Moon
Lake
|
60.10%(4)
|
-
|
Geophysical
surveys
|
|
Moon Lake
North
|
100%
|
-
|
Geophysical
surveys
|
|
Moon Lake
South
|
75%(5)
|
-
|
Geophysical
surveys
|
|
South
Dufferin
|
100%
|
-
|
Soil
sampling
|
|
|
|
|
|
Notes:
(1) The
Company’s ownership interest as at December 31,
2020.
(2) JCU (Canada)
Exploration Company Limited (‘JCU’) funded their 10%
portion of exploration and evaluation expenditures during 2020 and
ownership interests are unchanged for 2020.
(3) Denison
earned an additional 0.32% interest in the Waterbury Lake property
during 2020. The partner, Korea Waterbury Uranium Limited
Partnership (‘KWULP’), elected not to fund the 2020
exploration program and therefore diluted its ownership interest.
Refer to RELATED PARTY TRANSACTIONS for more details.
(4) The partner,
Uranium One Inc. elected not to fund the 2020 exploration program
and therefore diluted its ownership interest.
(5) In accordance
with the January 2016 letter agreement with CanAlaska Uranium Ltd,
Denison ownership interest increased to 75% in the Moon Lake South
claim in February 2020.
(6) The Company
reports total exploration metres drilled and the number of holes
that were successfully completed to their target
depth.
CANADIAN EVALUATION ACTIVITIES
|
Property
|
Denison’s
ownership(1)
|
Evaluation drilling(4)
|
Other activities
|
Wheeler
River
|
90%(2)
|
705 m (5 small
diameter wells)
|
ISR Field
Testing,
Engineering,
Environmental Assessment
|
|
Waterbury Lake
|
66.90%(3)
|
-
|
Concept Study, PEA
Activities
|
|
|
|
|
|
Notes:
(1) The
Company’s ownership interest as at December 31,
2020.
(2) JCU funded
their 10% portion of exploration and evaluation expenditures during
2020 and ownership interests are unchanged for 2020.
(3) Denison
earned an additional 0.32% interest in the Waterbury Lake property
during 2020. The partner, KWULP, elected not to fund the 2020
exploration program and therefore diluted its ownership interest.
Refer to RELATED PARTY TRANSACTIONS for more details.
(4) Small
diameter evaluation drilling includes HQ/PQ sized diamond drilling
of new holes for the purposes of regional groundwater sampling.
Figures include total evaluation metres drilled and total number of
holes completed.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The
Company’s land position in the Athabasca Basin, as of
December 31, 2020, is illustrated in the figure below. The
Company’s Athabasca land package did not change during the
fourth quarter of 2020, remaining at 268,725 hectares (204
claims).
Wheeler River Project
A 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.
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’ 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.
Given the social,
financial and market disruptions related to COVID-19, and certain
fiscally prudent measures, Denison temporarily suspended certain
activities at Wheeler River starting in April 2020, including the
formal parts of the EA program, which is on the critical path to
achieving the project development schedule outlined in the PFS
Technical Report. While the formal EA process has resumed in early
2021, the Company is not currently able to estimate the impact to
the project development schedule, outlined in the PFS Technical
Report, and users are cautioned that certain of the estimates
provided therein, particularly regarding the start of
pre-production activities in 2021 and first production in 2024
should not be relied upon.
|
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 2020,
Denison’s share of evaluation costs at Wheeler River was
$3,383,000 (2019 - $9,867,000). Although much of the original
program planned for 2020, including significant field testing, was
deferred to 2021 due to the pandemic, significant progress was
still made in advancing critical elements of the Phoenix ISR
operation planned for the Wheeler River project, including the
following:
●
Core leach testing with
initial testing resulting in uranium concentrations up to four
times the amount assumed in the PFS (see Denison press release
dated February 19, 2020)
●
Metallurgical testing for
leaching at low temperatures;
●
Metallurgical testing to
support the separation of iron and radium precipitates from the
uranium bearing solution (‘UBS’); and
●
A comprehensive trade-off
study to evaluate the use of a freeze wall rather than a freeze
‘dome’ design for Phoenix.
In addition,
input criteria for the EA and the installation of additional
groundwater monitoring wells around Phoenix were completed during
the year.
Technical
activities in 2020 consisted of desktop studies, including the
freeze wall trade-off study, metallurgical programs, as well as
various field tests and related activities at the Wheeler River
site (the ‘2020 Field Program’).
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Prior
to resuming field activities at Wheeler the Company developed
comprehensive policies to support the safe resumption of work at
the Wheeler River site for the 2020 Field Program. The protocols
consider the unique health and safety risks associated with
operating a remote work camp amidst the ongoing COVID-19 pandemic.
Public health guidelines and best practices have been incorporated
into the Company’s plans, which have been reviewed by the
Company’s Vice President Operations, President & CEO, and
the Environmental Health and Safety Committee of the Board of
Directors (see Denison press release date July 27,
2020).
2020
Field Program:
●
Hydrogeological Test Work
The hydrogeologic model for Phoenix, developed by
Petrotek, produced demonstration of "proof of concept" for the
application of the ISR mining method at Phoenix, with respect to
potential operational extraction and injection rates (see Denison
press release dated June 4, 2020). The hydrogeologic model was
developed based on actual field data collected from the 2019 Field
Test (see Denison press release dated December 18,
2019). Based on the positive results from the hydrogeologic
model, the Company developed and commenced the 2020 Field Program.
The purpose of the additional test work completed in 2020 was to
further evaluate and verify the ISR mining conditions present at
Phoenix by supplementing the extensive dataset acquired as part of
the 2019 field work (‘2019 Field
Test’).
17 pump and
injection tests were completed 2020 between Test Area 1 and Tests
Area 2 of the 2019 Field Test at Phoenix Zone A. The data collected
from these tests will supplement the extensive dataset acquired as
part of the 2019 Field Test and is expected to provide additional
confidence in the Company’s understanding of the fluid
pathways within Test Area 1 and Test Area 2, and to provide
valuable insight into individual well capacities and the overall
hydrogeological network of the deposit areas.
The
hydrogeologic data collected for the Project and the associated
modeling is expected to be of critical importance to the
advancement of Phoenix as an ISR mining operation – as it is
expected to support the design and permitting of future field
tests, the detailed assessment of the ISR permeability requirements
of the orebody, and the detailed ISR mine planning efforts required
as part of the completion of a future FS.
Over 1,000
additional samples were collected from historic drill hole cores,
each of which was dried, and analyzed for permeability and
porosity. The samples were selected to refine our understanding of
the mineralized hydrogeologic horizons, including the low
permeability basement rocks, and the overlying
sandstone.
Mineralized
core samples were collected and shipped to SNC Lavalin (Saskatoon)
for rock mechanics tests, including tensile strength and uniaxial
compressive strength. The samples targeted various previously
identified hydrogeologic units, including the Upper Clay Zone,
Lower Clay Zone and High-Grade Friable Zone. The results from these
tests will be utilized to better define the design of certain
permeability enhancement techniques for subsequent field
programs.
●
Installation of Additional Environmental Monitoring
Wells
Five
additional monitoring wells were installed in two clusters, located
approximately 500 metres northeast of Phoenix and 750 metres
southeast of Phoenix. The additional monitoring wells allow for the
collection of groundwater flow information at locations further
away from the Phoenix deposit than had been previously studied,
providing additional data for the site groundwater model –
which will allow for proper long-term monitoring and the modelling
of groundwater impacts through construction, operations and
decommissioning, each of which will be an important element of the
effects assessments in an Environmental Impact Statement
(‘EIS’).
Groundwater
samples were collected from eight different environmental
monitoring wells in the Phoenix deposit area. The sampling occurred
at several horizons within each well, including horizons above,
below and within the Phoenix ore zone. The samples have been sent
to the Saskatchewan Research Council (‘SRC’) for
analysis. Once received, the data from these samples will be
utilized to support the design and permitting of additional field
tests expected to be incorporated into a future FS.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
During the fourth
quarter, Denison completed additional evaluation, preparation and
desktop planning activities in support of the expected 2021 Field
Program at Phoenix – details of which were released in early
2021. See OUTLOOK FOR 2021 for further details regarding the
planned 2021 Field Program.
Metallurgical Testing
Metallurgical
test work in 2020 was conducted at the SRC laboratories in
Saskatoon, and included studies at low temperatures for leaching
kinetics, removal of iron and radium precipitates from the UBS, and
corrosion tests to determine well material requirements.
Additionally, core leach testing resumed late in the fourth quarter
and is planned to continue through the first quarter of 2021.
Highlights from the metallurgical testing program are outlined
below:
●
Iron/Radium Removal from UBS:
The operating
plan envisioned for the Phoenix deposit results in minimal
“contaminants of concern” remaining on surface at mine
closure. The processing plant will be designed to remove
essentially all contaminants of concern at the front end of the
plant with precipitation of iron and radium as the first unit
operation. Testing to date has indicated that the iron and radium
removal process results in approximately a 1% carry over of uranium
in the precipitate. This precipitate is planned to be sent to a
uranium mill for recovery of the residual amount of uranium and
disposal of the iron and radium.
●
Low Temperature Leach Tests:
The
temperature of the Phoenix deposit at 400 metres depth is estimated
to be between 5 to 10 degrees Celsius. Most uranium mills run their
leach circuits at 20 to 50 degrees Celsius. Due to this significant
temperature differential, test work was undertaken in 2020 to
evaluate leaching at lower temperatures in order to assess the
lixiviant composition required to achieve sufficient leaching
kinetics at lower temperatures. Conclusions from the test indicate
that varying the sulfuric acid concentration in the lixiviant can
compensate for the impact of lower temperature on the rate of
leaching.
These specialized leach tests involve the testing
of intact mineralized core samples, representative of the in-situ
conditions at Phoenix, to evaluate uranium recovery specifically
for the ISR mining method. Mineralized core samples of between 0.75
metres and 1.5 metres in length were obtained from the 2019 Field
Test. A triple-tube method of core recovery was employed to ensure
the core could be recovered with minimal breakage and would be
representative of the Phoenix orebody. Core samples were collected
to represent the various ore types and grade ranges (~1% to 60%
U3O8)
at Phoenix.
A
specialized laboratory apparatus is utilized to completely seal the
outer diameter of the intact mineralized core, thus ensuring that
the leach solution travels through the intact core sample (15
centimetres to 25 centimetres in length). The tests are expected to
utilize mining solution (or lixiviant) with acid and oxidant
concentrations, and injection pressures and temperatures, similar
to those envisaged during commercial ISR operations. Denison
considers this type of specialized test of intact competent core
samples to be the most representative available laboratory test of
the natural leach conditions of the host rock. Accordingly, these
tests are expected to provide important detailed metallurgical
recovery data, that is expected to inform the Company’s
understanding of the potential scope of the start-up, steady state,
and closure of ISR wells.
In February
2020, the Company reported on the results from the initial core
leach tests (see Denison press release dated February 19, 2020). At
that time, over 50 days of testing had been completed on a
mineralized core sample recovered from drill hole GWR-016. The core
sample was recovered from between 405 and 407 metres below surface
within the extent of the high-grade core of Phoenix Zone A. Various
parameters for lixiviant composition (including both acid and
oxidant concentration) have been tested to date. In all cases, the
lixiviant is injected into the core continuously and only
interrupted periodically if a change in the lixiviant composition
is required. After the initial test startup, UBS recovered from the
core sample returned uranium content in the range of 13.5 g/L to
39.8 g/L. The average uranium concentration returned over the last
20 days of testing was 29.8 g/L – which represents a uranium
content that is approximately 200% higher than (or three times) the
minimum level used for the ISR process plant design in the PFS of
10 g/L.
In late 2020,
core leach testing resumed, with several additional core leach
tests currently planned to continue into early 2021, with various
cores representative of the differences in grade and permeability
within the Phoenix deposit. See OUTLOOK FOR 2021 below for
additional details.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Trade-off Study for Assessing a Freeze Wall Design for the
High-grade Phoenix Deposit
In December 2020,
Denison announced the completion of a trade-off study assessing the
merit of adopting a freeze wall design as part of the ISR mining
approach planned for the Phoenix (see Denison press release dated
December 1, 2020). Based on the results of the trade-off study, a
freeze wall design has the potential to offer significant
environmental, operational, and financial advantages compared to
the freeze cap (or freeze “dome”) design previously
planned for the Project and included in the Project’s
PFS.
Accordingly, the
Company has decided to adapt its plans for the Project to use a
freeze wall in future Project design and environmental assessment
efforts. The trade-off study highlights the following significant
benefits of a freeze wall design:
●
Enhanced environmental design:
The freeze
wall design provides full hydraulic containment of the ISR well
field by establishing a physical perimeter around the mining area,
which will extend from the basement rock underlying Phoenix to
surface – enhancing environmental protection in the area of
the ISR mining operation, thereby minimizing potential
environmental impacts during the life of the operation, while still
establishing a defined area for decommissioning and
reclamation.
●
Lower technical complexity and operational risks:
A
freeze wall is expected to be installed using existing and proven
vertical or angled diamond drilling methods, rather than the
directional / horizontal drilling approach proposed to establish a
freeze cap. The use of conventional diamond drilling methods is
expected to substantially decrease the technical complexity
associated with project construction. Similarly, the adaptation of
previous plans (described in the PFS), to remove the cap design is
expected to significantly reduce operational risks by eliminating
the potential intersection of freeze holes during the installation
of future ISR wells as the ISR wells will no longer have to pierce
a freeze cap to access the mining horizon.
●
Expected reduction in initial capital costs, with phased mining
approach:
The freeze
cap design contemplated the use of a small number of large
horizontal freeze holes to encapsulate the entire Phoenix deposit
at depth prior to first production. In contrast, the freeze wall
design, which consists of vertical / angled freeze holes, provides
the flexibility for a phased mining approach that requires only a
limited initial freeze wall installation to commence mining –
with additional ground freezing occurring throughout the life of
the mine in sequential phases. Preliminary designs for mining of
the Phoenix deposit, using a freeze wall approach, now call for
five phases, thus potentially reducing the Project’s upfront
capital requirements and initial ground freezing time. The planned
phases are expected to target the least capital-intensive areas of
the deposit first (higher grades, smaller footprint) to defer
capital costs as much as possible and simultaneously shorten the
Project construction schedule.
●
Strengthened project sustainability:
The
predominant drilling method used in the freeze wall design is
conventional diamond drilling. This existing and proven method is
widely employed and established in northern Saskatchewan.
Accordingly, it is anticipated that Denison will be able to
leverage the existing skilled work force in the region to increase
business and employment opportunities for residents of
Saskatchewan’s north.
Environmental and Sustainability Activities
In 2019, the
Company submitted a Project Description (‘PD’)
to the Canadian Nuclear Safety Commission (‘CNSC’) and
a Technical Proposal to the Saskatchewan Ministry of Environment
(‘SK MOE’) to support the advancement of an ISR uranium
mine at Wheeler River. Acceptance of these
documents was announced by both the SK MOE and the CNSC on June 1,
2019. This milestone marked the official commencement of the EA
process.
The
Company identified the EA process as a key element of the Project's
critical path. Accordingly, Denison has initiated various studies
and assessments as part of the EA process, which is intended to
culminate in the preparation of the Project EIS. The EA is a
planning and decision-making tool, which involves predicting
potential environmental effects throughout the project lifecycle
(construction, operation, decommissioning and post-decommissioning)
at the site, and within the local and regional assessment
areas.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
In
late December 2019, Denison received a Record of Decision from the
CNSC on the scope of the factors to be taken into account for the
Wheeler EA, which indicate that the EA will follow the CNSC’s
generic guidelines.
In March
2020, Denison announced the temporary suspension of the formal
aspects of the EA in response to the onset of the COVID-19 pandemic
in Canada (see Denison press release dated March 20, 2020).
With the safe and
successful completion of the 2020 Field Program and based on
consultation with various interested parties involved in the EA
process, Denison made the decision to resume the formal EA in
January 2021 (see Denison press release November 9,
2020).
EA Activities
During 2020, in
order to prepare for the re-start of the formal EA process, Denison
focused its efforts on several areas designed to progress the
Project’s effects assessment as well as the draft submission
of the EIS. Two key components of the work completed during the
year were the development of an EA design basis, as well as the
installation and testing of additional regional groundwater
sampling wells to further establish baseline
conditions.
The EA design
basis is determined in order to predict, with some certainty, each
Project output that has the potential to impact the environment
from the start of construction through final decommissioning. The
EA design basis includes the following Project
outputs:
●
Air emissions from all
anticipated sources;
●
Water management, with intake
and effluent quality and volumes;
●
Waste management, including
contaminate estimates and volumes;
●
Truck transport, including
load details; and
●
Workforce
requirements.
Different from
the engineering design, the EA basis should provide enough
flexibility to accommodate design changes as the Project advances
through to completion of a future FS, as well as detailed design,
and operations. The outputs must be defensible to the regulators
with enough engineering design support or examples from similar
operations, to ensure the predicted assessment does not
overestimate or underestimate impacts to the
environment.
Given the nature
if ISR mining, the Company expects regulators and the public to
focus on the potential impacts of the mining operation to the
groundwater and nearby lakes. With this in mind, Denison installed
five additional groundwater monitoring wells at locations selected
based on regional and local groundwater movement. Collection of
data on groundwater flow and chemistry has commenced, with well
screens set within each well at depths where there is higher
sandstone fracturing in order to provide data on potential pathways
for water movement from the deposit. The combined data will be
analyzed to develop a conceptual site model predicting the
potential effects to the surface environment, if any, from the
proposed ISR mining operation. Additionally, the information
collected through this process is expected to be important in the
development of monitoring and mitigation plans to support mine
operations in the future.
Community Engagement Activities
Despite the
temporary suspension of the formal EA process during most of 2020,
Denison continued to keep various interested parties informed about
planned Project activities and changes to those plans due to the
COVID-19 pandemic. Recognizing that the remote location of
communities in northern Saskatchewan pose a unique risk for
COVID-19 transmission and treatment, in early April, Denison
provided financial support and the procurement of COVID-19 safety
supplies, such as hand sanitizer and cleaning products to a number
of remote communities in northern Saskatchewan – enhancing
their capacity to mitigate and/or respond to a COVID-19 outbreak.
In late April 2020, a number of Indigenous and non-Indigenous
communities in the north west of Saskatchewan experienced COVID-19
outbreaks. In response, a unique collective of Indigenous and
non-Indigenous leaders came together to create the Northwest
Communities Incident Command Centre, which was focused on ensuring
the communities responded to COVID-19 from a regional perspective.
Denison provided additional financial support for this initiative,
and invited other exploration companies to do the same –
amplifying the Company’s contribution. Additionally, Denison
worked directly with the Command Centre to get input on the
development of a Travel Protocol for travel through northern
Saskatchewan that would be respectful of local concern for the
potential transmission of COVID-19 through travel connected to
field activities, like Denison’s exploration and evaluation
activities. Denison’s Travel Protocol was shared with the
Saskatchewan Mining Association (‘SMA’) and has been
provided as an example of best practice for other SMA members to
refer to while travelling to and from remote sites.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Exploration
Program
Denison’s
share of exploration costs at Wheeler River during 2020 were
$3,336,000 (2019 – $2,679,000).
The 2020
exploration drilling program at Wheeler River commenced late in the
third quarter and concluded in December 2020. A total of 29 holes
were drilled as part of the program, totaling 11,874 metres across
the following target areas: Phoenix Zone A and B (3,796 metres; 8
holes), Phoenix Zone C (3,633 metres; 11 holes), K West (2,399
metres, 6 holes) and M Zone (2,046 metres, 4 holes).
Phoenix Zone A and Zone B
Eight diamond drill holes totaling 3,796 metres
were completed to test the extents of known mineralization at Zones
A and B. While several drill holes intersected weak uranium
mineralization, the only notable potential extension of existing
mineralization was reported in drill hole WR-765D1 in Zone B
– which intersected 0.36% U3O8
over 3.5 metres (from 401.3 to 404.8
metres), drilled at an azimuth
of 332.3° and an inclination of -79.6°, approximately 15
metres east of WR-333 (which previously intersected 14.6%
U3O8
over 6.0 metres).
Phoenix Zone C
Zone
C is the southwestern-most mineralized zone at Phoenix (see map
below). Prior to the 2020 drilling program, Zone C was defined over
a strike length of approximately 250 metres by only five
mineralized intersections. Historic exploration drilling at Phoenix
was largely focused on the delineation of Zone A and Zone B. As a
result of the lack of historical drilling at Zone C, no resource
estimate exists for the mineralization previously identified at
Zone C.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The
2020 drilling program was designed to test the continuity and
extents of known mineralization at Zone C. Eleven drill holes were
completed at Zone C in 2020 for a total of 3,633 metres. Three of
these drill holes returned uranium mineralization, successfully
extending the mineralized zone's strike length by approximately 20
metres to the southwest and delineating a potential high-grade
mineralized “core.” Mineralized intersections from 2020
drilling at Zone C are outlined in the table below and illustrated
in the map below.
With
Denison’s recent decision to adopt a freeze wall design and
phased mining approach, as part of the ISR mining operation planned
for the Phoenix deposit, it is possible that further exploration
could result in the delineation of a mineral resource that could
become a future mining “phase” at Phoenix. Additional
drilling will be required to determine the extent of uranium
mineralization at Zone C.
HIGHLIGHTS OF ASSAY RESULTS FOR PHOENIX ZONE C DRILL
HOLES
|
Hole Number
|
From
(m)
|
To
(m)
|
Length4,5
(m)
|
Grade
(% U3O8)1,2
|
WR-328D1
|
376.4
|
381.4
|
5.0
|
5.69
|
WR-767D1
|
382.0
|
384.5
|
2.5
|
8.84
|
WR-771(3)
|
376.5
|
377.5
|
1.0
|
0.89
|
Notes:
1. U3O8 is the
chemical assay of mineralized split core samples.
2. Intersection
interval is composited above a cut-off grade of 2.0% U3O8 unless
otherwise indicated.
3. Intersection
interval is composited above a cut-off grade of 0.1% U3O8.
4. WR-328D1 was
drilled at an azimuth of 333.7° and an inclination of
-80.3°. WR-767D1 was drilled at an azimuth of 310.4° and
an inclination of -79.3°. WR-771 was drilled at an azimuth of
310.0° and an inclination of -79.5°.
5. As the drill
holes are oriented steeply toward the northwest and the
unconformity mineralization is interpreted to be flat-lying, the
true thickness of the mineralization is expected to be
approximately 98% of the intersection lengths.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
K West
K
West is located in the northwest portion of the Wheeler River
property. The K West fault is the primary exploration target in
this area, which lies within the K West conductive trend, at or
near the contact between a graphitic pelite and underlying Archean
granite. The K West fault has been drill-defined over a strike
length of approximately 15 kilometres, on both the Wheeler River
property and on adjacent properties located to the north of Wheeler
River, where several zones of high-grade unconformity-hosted
mineralization have been identified (including on Denison’s
30% owned Mann Lake property). Historical drilling at K-West, which
has been interpreted to have intersected the unconformity anywhere
from 30 to 100 metres hanging wall of the K West fault, has defined
a broad zone of anomalous uranium pathfinder geochemistry,
specifically copper, nickel, and cobalt.
A
total of 6 drill holes were completed at K-West as part of the 2020
exploration program, including drill hole WR-741AD1, which was
designed to test the up-dip projection of the K West fault
intersected in 2018 by drill hole WR-741A. WR-741AD1, drilled at an
azimuth of 295.7° and an inclination of -71.0°,
intersected weak mineralization hosted within a narrow breccia
approximately 3 metres below the unconformity, located at the upper
contact of the K-West fault. In addition, composite sandstone
samples from WR-741AD1 returned highly anomalous copper and nickel
concentrations over the lower 310 metres of the sandstone
column.
WR-741AD2 was drilled 10 metres to the northwest
of WR-741AD1, at an azimuth of 294.3° and an inclination of
-63.0°, to test the extents of the mineralization identified
below the unconformity. As detailed in the table below, WR-741AD2
intersected high-grade uranium mineralization, up to 7.66%
U3O8,
that is interpreted to straddle the unconformity
contact.
In
addition, low grade mineralization was encountered straddling the
unconformity in WR-775, drilled at an azimuth of 282.0° and an
inclination of -74.0°, located approximately 400 metres to the
south of WR-741AD2. Highlights from the 2020 drilling are
summarized in the table below. See the figure below for a map of K
West illustrating the location of the 2020 drilling.
HIGHLIGHTS OF ASSAY RESULTS FOR K WEST DRILL HOLES
|
Hole Number
|
From
(m)
|
To
(m)
|
Length4
(m)
|
Grade
(% U3O8)1,2
|
WR-741AD1
|
644.8
|
647.8
|
3.0
|
0.42
|
WR-741AD2
|
640.3
|
644.3
|
4.0
|
2.14
|
(includes)3
|
643.3
|
644.3
|
1.0
|
7.66
|
WR-775
|
594.4
|
595.4
|
1.0
|
0.30
|
Notes:
1. U3O8 is the
chemical assay of mineralized split core samples.
2. Intersection
interval is composited above a cut-off grade of 0.1% U3O8 unless
otherwise indicated.
3. Intersection
interval is composited above a cut-off grade of 1.0% U3O8.
4. As the drill
holes are oriented steeply toward the northwest and the
unconformity mineralization is interpreted to be flat-lying, the
true thickness of the mineralization is expected to be
approximately 90-95% of the intersection lengths.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
M Zone
Regional
exploration drilling was also completed at the M Zone target area
during the 2020 Wheeler River exploration program. M Zone is
located approximately 5.5 kilometres east of Phoenix and lies
roughly 700 metres from the McArthur River – Key Lake haul
road. Denison’s exploration team conducted a core-relogging
program in 2018 and identified several historical drill holes at M
Zone that encountered indicative structure, alteration, elevated
radioactivity, or anomalous pathfinder geochemistry worthy of
follow-up.
A
total of 4 drill holes were completed at M Zone as part of the 2020
exploration program, including drill hole WR-778, which was
designed to test the subcrop of a graphitic fault at the
sub-Athabasca unconformity that was previously intersected at depth
in DDH ZM-17. WR-778, drilled at an azimuth of 304° and an
inclination of -80.0°, intersected a wide reverse fault zone
in the lower sandstone, highlighted by multiple basement wedges,
intense hydrothermal alteration, and a broad interval of weak
uranium mineralization.
The
presence of basement wedges in WR-778 and an interpreted
unconformity elevation offset of 25 metres indicates that the broad
zone of weak mineralization is controlled by a large reverse
fault.
Weak uranium mineralization was returned along the
nose of basement wedges within a broad reverse fault zone, as
summarized in the table below. The mineralized intervals are
reported as the radiometric equivalent uranium derived from a total
gamma down-hole probe (“eU3O8”)
due to extensive core loss. Taken together, the results from WR-778
present a model that may be similar to Zone 4 at McArthur River.
While the mineralization at M Zone is significantly lower grade
than McArthur, there are many similarities and future exploration
drilling is expected to test if the area is analogous to Zone 4 at
McArthur River.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Highlights
of mineralized intersections are provided in the table below and
drill locations are shown in the figure below.
HIGHLIGHTS OF MINERALIZED INTERSECTIONS FOR M ZONE DRILL
HOLES
|
Hole Number
|
From
(m)
|
To
(m)
|
Length3
(m)
|
eU3O8(%)1,2
|
WR-778
|
397.1
|
407.3
|
10.2
|
0.08
|
And
|
411.2
|
414.2
|
3.0
|
0.089
|
Notes:
1. Due to core
loss, the interval is reported as radiometric equivalent
U3O8 (eU3O8).
2. Intersection
interval is composited above a cut-off grade of 0.05%
eU3O8 unless
otherwise indicated.
3. As the
mineralization is fault hosted, the true thickness of the
mineralization is expected to approximate the intersection
lengths.
Other Pipeline Properties
Exploration Program
Denison’s
share of exploration costs at its exploration pipeline properties
during 2020 was $2,025,000 (2019 - $2,821,000).
During 2020, the
Company completed a helicopter-supported soil sampling program on
its wholly-owned South Dufferin Project. A total of 3,042 soil
samples were collected across two sampling grids to identify
surface geochemical anomalies that may be indicative of a uranium
mineralizing system.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The results of
this program will be used in conjunction with existing geophysical
data to plan future exploration activities on the South Dufferin
Project.
In addition,
during the first quarter of 2020, four geophysical surveys were
completed on five of the Company’s projects. The surveys were
carried out at Waterbury Lake, Murphy Lake, Moon Lake, and Moon
Lake North and South (shared survey). The purpose of the surveys is
to generate targets for future drill testing in areas considered to
have significant exploration potential, and in certain cases to
protect the associated claims from lapsing. The planned surveys for
Ford Lake and Darby were not completed due to disruptions related
to COVID-19.
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.
Evaluation Program
Denison’s
share of evaluation costs at its pipeline properties during 2020
was $215,000 (2019 - $nil).
The costs are
related to the concept study completed for the THT deposit on the
Waterbury Lake property in July 2020, as well as the independent
Preliminary Economic Analysis (‘PEA’) that was
completed in the fourth quarter.
In November 2020,
the Company reported on the results of the PEA for the THT deposit
using the ISR mining method (see Denison press release dated
November 17, 2020). The PEA demonstrates robust economics for a
small-scale Athabasca Basin ISR uranium mining project –
including low initial capital costs, low operating costs and
globally competitive all-in costs, as follows:
THT PEA Highlights
|
Mine
life
|
~ 6 years (Avg.
~1.6 million lbs U3O8 per
year)
|
Projected mine
production(1)
|
9.7 million lbs
U3O8 (177,664 tonnes
at 2.49%)
|
Average cash
operating costs
|
USD$12.23
($16.27) per lb U3O8
|
Initial capital
costs(2)
|
$112 million
(100% basis)
|
Base case pre-tax
IRR(3)
|
39.1%
|
Base case pre-tax
NPV8%(3)
|
$177 million
(100% basis)
|
Base case price
assumption
|
UxC spot
price(4)
(Avg. USD$53.59 per lb U3O8)
|
Operating profit
margin (5)
|
77% at USD$53.59
per lb U3O8
|
All-in
cost(6)
|
USD$24.93
($33.16) per lb U3O8
|
Notes:
(1)
See the NI 43-101 Technical
Report for the THT deposit titled ‘Preliminary Economic
Assessment for the Tthe Heldeth Túé (J Zone) Deposit,
Waterbury Lake Property, Northern Saskatchewan, Canada, with an
effective date of October 31, 2020 for additional information
regarding projected mine production. A copy of this report is
available on Denison’s website and under its profile on SEDAR
at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml. Scheduled
tonnes and grade do not represent an estimate of mineral
reserves.
(2)
Initial capital costs exclude
$20.1 million of estimated pre-construction Project evaluation and
development costs.
(3)
NPV and IRR are calculated to
the start of pre-production activities for the THT
operation.
(4)
Spot price forecast is based
on ‘Composite Midpoint’ scenario from UxC’s
Q3’2020 Uranium Market Outlook for the years 2028 to 2033,
and is stated in constant (not-inflated) dollars.
(5)
Operating profit margin is
calculated as uranium revenue less operating costs, divided by
uranium revenue. Operating costs exclude all royalties, surcharges
and income taxes.
(6)
All-in cost is estimated on a
pre-tax basis and includes all project operating costs and capital
costs, excluding project evaluation and development costs, divided
by the estimated number of finished pounds U3O8
produced.
The robust
economics are a result of the innovative application of established
ISR technology and ground freezing technology, in addition to the
close proximity of existing infrastructure to minimize onsite
requirements. The implementation of a freeze wall (see figure
below) to surround the deposit allows mining to take place from the
peninsula above the deposit and provides the same advantages as
described above relating to the freeze wall trade-off study for
Phoenix.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The PEA is
prepared on a pre-tax and 100% ownership basis, as each partner to
the Waterbury Lake Uranium Limited Partnership
(‘WLULP’), which owns the Waterbury Property, is
subject to different tax and other obligations. Denison has
completed an indicative post-tax assessment that reflects its
ownership interest in the WLULP (66.90%), the impact of expected
toll mill fees recovered from its 22.5% interest in the MLJV, and
the benefit of Denison's applicable existing tax shelter
balances.
Denison’s
post-tax indicative base-case results are highlighted by an
internal rate of return (‘IRR’) of 30.4%, a pay-back
period of approximately 23 months, and a base-case Net Present
Value(8%)
(‘NPV’) of $72 million.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
GENERAL AND ADMINISTRATIVE EXPENSES
Total general and
administrative expenses were $7,609,000 during 2020 (2019 -
$7,811,000). 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. Included in general
and administrative expense is $1,827,000 in non-cash share-based
compensation expense (2019 - $2,222,000).
The decrease in
general and administrative expense during the 2020, as compared to
the prior year, is due to a decrease in employee costs, and
share-based compensation expense, offset by an increase in legal
costs. The decrease in employee costs was driven by a decrease in
the bonus expense. In order to preserve cash in early 2020, the
Company decided to settle the 2019 bonuses for the executive team
and the majority of staff with a grant of restricted share units
(‘RSUs’). The cost of RSUs is expensed over the
three-year vesting period of the units, whereas cash bonuses, by
comparison, are fully expensed at the time of approval. With staff
bonuses and a portion of executive bonuses having been paid in cash
in the prior year, the bonus expense in 2020 decreased, in part as
a result of the change in the timing of the recognition of the
expense, and also as a result of a slight decrease in the total
bonus amount. The increase in legal costs was related to
arbitration proceedings between the Company and a third
party.
OTHER INCOME AND EXPENSES
During 2020, the
Company recognized a loss of $95,000 in other income/expense (2019
– gain of $2,970,000). The loss in the current year is due to
several offsetting factors:
During 2020, the
Company recorded a gain of $5,046,0000 related to its investments
carried at fair value (2019 – loss of $1,085,000). The
Company’s investments consist of investments in other
publicly traded entities. 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.
During 2020, the
Company recorded an expense of $3,595,000 in other income and
expense related to an increase in the estimate of reclamation
liabilities at Elliot Lake (2019 - $845,000). In 2020, the increase
in the reclamation liability was predominantly due to changes in
the long-term discount rate used to estimate the present value of
the reclamation liability as well as changes in cost estimates
related to certain reclamation obligations (2019 – changes in
the long-term discount rate). Refer to Reclamation Sites below for
further detail.
In addition,
during 2020, the Company recorded other expense of $850,000 related
to a legal settlement.
During 2019, the
Company recorded a deconsolidation gain of $5,267,000 related to
the Company’s investment in GoviEx, when Denison ceased to
exercise significant influence over GoviEx and changed its
accounting method for this investment from the use of the equity
method to treating the investment as a portfolio investment at fair
value through profit and loss.
EQUITY SHARE OF INCOME (LOSS) FROM ASSOCIATES
During the fourth
quarter of 2019, the Company determined that it no longer exercised
significant influence over GoviEx Uranium Inc.
(‘GoviEx’) and began accounting for its investment in
the common shares of GoviEx as a portfolio investment at fair value
through profit and loss. As a result, during 2020, the Company
recorded $nil in equity gain or loss from associates. During 2019,
the Company recognized a loss of $426,000 from its equity share of
GoviEx. The loss in 2019 was primarily due to an equity loss of
$678,000, offset by a dilution gain of $252,000.
INCOME TAX RECOVERY AND EXPENSE
During 2020, the
Company recorded an income tax recovery of $860,000 (2019 -
$5,376,000). The decrease in the income tax recovery in 2020 was
predominantly due to a decrease in the net loss in the year
compared to the prior year, as well as an increase in the amount of
deferred tax assets not recognized in 2020.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash
equivalents were $24,992,000 at December 31, 2020 (December 31,
2019 – $8,190,000).
The increase in
cash and cash equivalents of $16,802,000 was due to net cash used
in operations of $13,485,000 more than offset by net cash provided
by financing activities of $30,506,000 and net cash provided by
investing activities of $305,000.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Net cash used in
operating activities of $13,485,000 during 2020 was predominantly
due to the net loss for the period, adjusted for non-cash items and
changes in working capital items.
Net cash provided
by investing activities of $305,000 consists primarily of the
proceeds from the sale of certain portfolio investments and
property, plant and equipment, offset by expenditures for property,
plant and equipment.
Net cash provided
by financing activities of $30,506,000 relates to the following
transactions: (i) the net proceeds from the Company’s public
offering of common shares qualified by the 2020 Short Form
Prospectus (defined below) pursuant to which the Company issued
28,750,000 common shares at a price of USD$0.20 on April 6, 2020
(‘April 2020 Offering’), for gross proceeds of
$8,041,000 (USD$5,750,000); (ii) the net proceeds from the
Company’s public offering of common shares qualified by a
prospectus supplement to the 2020 Shelf Prospectus (defined below),
pursuant to which the Company issued 51,347,321 common shares at a
price of US$0.37 on October 14, 2020 (‘October 2020
Offering’), for gross proceeds of $24,962,000
(US$18,999,000); and (iii) the net proceeds from the
Company’s private placement issuance of 1,081,959 common
shares, on a flow-through basis, at a price of $0.86 on December
31, 2020 (‘2020 FT Offering’) for gross proceeds of
$930,000.
On June 2, 2020,
the Company filed a short form base shelf prospectus (‘2020
Shelf Prospectus’) with the securities regulatory authorities
in each of the provinces and territories in Canada and in the
United States. The Company may issue securities, in amounts, at
prices, and on terms to be determined based on market conditions at
the time of sale and as set forth in the 2020 Shelf Prospectus, for
an aggregate offering amount of up to $175,000,000 during the 25
month period beginning on June 2, 2020.
In November 2020,
Denison entered into an equity distribution agreement providing for
an at-the-market (‘ATM’) equity offering program,
qualified by a prospectus supplement to the 2020 Shelf Prospectus.
The ATM will allow Denison, through its agents, to, from time to
time, offer and sell, in Canada and the United States, such number
of common shares as would have an aggregate offering price of up to
USD$20,000,000. In January and February 2021, Denison issued an
additional 4,230,186 common shares under the ATM
program.
In February 2021,
Denison issued 31,593,950 units of the Company pursuant to a public
offering of common shares qualified by a prospectus supplement to
the 2020 Base Shelf Prospectus for gross proceeds of $36,266,000.
In March 2021, Denison issued 5,926,000 common shares on a
flow-through basis for gross proceeds of $8,000,000. See SUBSEQUENT
EVENTS for further details.
Refer to
‘OUTLOOK for 2021’ below for details of the
Company’s working capital requirements for the next twelve
months.
Use of Proceeds
2019 Flow Through Financing
As at December
31, 2020, the Company has fulfilled its obligation to spend
$4,715,000 on eligible Canadian exploration expenditures as a
result of the issuance of common shares on a flow-through basis in
December 2019.
April 2020 Equity Financing
As disclosed in
the Company’s Short Form Prospectus dated April 6, 2020
(‘2020 Short Form Prospectus’), the net proceeds of the
April 2020 Offering were to be utilized to supplement the
Company’s cash working capital to fund its business
operations through 2020 and into 2021.
The use of
proceeds in the 2020 Short Form Prospectus anticipated further
curtailment to the Company’s exploration and evaluation
activity levels in early 2021 that were based on then-current
market conditions and other operational constraints arising from
the COVID-19 pandemic. As noted in the prospectus, the
Company’s use of its available funds was based on its
projections and preliminary plans and was subject to change should
there be changes in market and/or other business
conditions.
As noted above,
during the fourth quarter of 2020, the Company completed the
October 2020 Offering for gross proceeds of $24,962,000
(US$18,999,000). As a result of this financing, as well as the
ability to resume certain activities under strict COVID-19 safety
protocols, the anticipated further curtailments of exploration and
evaluation activities were no longer necessary; and the Company
incurred increased evaluation expenditures related to Wheeler River
during 2020. As a result of the increased evaluation activity at
Wheeler River, as at December 31, 2020, the proceeds from the April
2020 Offering have been fully spent.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
October 2020 Equity Financing
As disclosed in
the Company’s Prospectus Supplement to the 2020 Base Shelf
Prospectus (‘October 2020 Prospectus Supplement’) dated
October 8, 2020, the net proceeds of the October 2020 Offering will
be utilized to fund Wheeler River evaluation and EA activities as
well as general, corporate and administrative expenses. During the
period between the close of the financing in October and December
31, 2020, the Company’s use of proceeds has been in line with
that disclosed in the October 2020 Prospectus
Supplement.
2020 Flow Through Financing
As at December
31, 2020, the Company has spent $nil towards its obligation to
spend $930,000 on eligible Canadian exploration expenditures
related to the 2020 FT Offering.
Revolving Term Credit Facility
On January 14,
2021, 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, 2022 (‘2021
Credit Facility’). Under the 2021 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 2020 Credit Facility (tangible net worth covenant, pledged
cash, investments amount and security for the facility) remain
unchanged by the amendment – including a requirement to
provide $9,000,000 in cash collateral on deposit with BNS to
maintain the 2021 Credit Facility. See SUBSEQUENT EVENTS
below.
Contractual Obligations and Contingencies
The Company has
the following contractual obligations at December 31,
2020:
|
|
|
|
|
|
|
|
|
|
After
|
(in
thousands)
|
|
Total
|
|
1
Year
|
|
2-3
Years
|
|
4-5
Years
|
|
5
Years
|
Accounts payable
and accrued liabilities
|
$
|
7,178
|
$
|
7,178
|
$
|
-
|
$
|
-
|
$
|
-
|
Lease
liabilities
|
|
688
|
|
231
|
|
259
|
|
198
|
|
-
|
Debt
obligations
|
|
35
|
|
9
|
|
19
|
|
7
|
|
-
|
|
$
|
7,901
|
$
|
7,418
|
$
|
278
|
$
|
205
|
$
|
-
|
Exploration Spending Required to Maintain Exploration Portfolio in
Good Standing
The Company has a
portfolio of mineral properties, predominantly composed of 204
mineral claims in the Athabasca Basin region of Saskatchewan,
Canada as at December 31, 2020. Under The Mineral Tenure Registry
Regulations in Saskatchewan, once a claim has been
‘staked’, it may be held for an initial two-year
period, and this period may be renewed year to year, subject to the
holder expending a minimum required amount on exploration on the
claim lands. Exploration expenditures that exceed the annual
spending requirements may be carried forward and applied against
future spending requirements.
In order to
maintain the Company’s current exploration portfolio in good
standing for a period of five years, the Company’s share of
the required exploration expenditures is outlined in the table
below.
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
Total
|
|
1
Year
|
|
2
Year
|
|
3
Year
|
|
4-5
Years
|
Exploration
expenditures required to maintain claim status
|
$
|
3,387
|
$
|
44
|
$
|
378
|
$
|
819
|
$
|
2,146
|
Surface lease
payments
|
|
1,370
|
|
274
|
|
274
|
|
274
|
|
548
|
|
$
|
4,757
|
$
|
318
|
$
|
652
|
$
|
1,093
|
$
|
2,694
|
The Company
routinely assesses its exploration portfolio in order to rank
properties in accordance with their exploration potential. From
time to time, strategic decisions are made to either acquire new
claims, through staking or purchase, or to allow claims to lapse.
Claims are allowed to lapse if the Company determines that no
further exploration work is warranted by the Company. The amounts
in the table above were calculated based on currently approved
legislation and assumes that the land claims held at the date of
the MD&A would be maintained for the duration of five years. In
addition, where Denison holds a claim with a partner, the Company
has assumed that each partner will fund their share of the required
expenditures.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Reclamation Sites
The Company
periodically reviews the anticipated costs of decommissioning and
reclaiming its mill and mine sites as part of its environmental
planning process. The Company’s reclamation liability, at
December 31, 2020, is estimated to be $38,420,000, which is the
present value amount that is expected to be sufficient to cover the
projected future costs for reclamation of the Company’s mill
and mine operations. There can be no assurance, however, that the
ultimate cost of such reclamation obligations will not exceed the
estimated liability contained in the Company’s financial
statements.
Elliot Lake – The Elliot Lake uranium mine
was closed in 1992 and capital works to decommission the site were
completed in 1997. The remaining provision is for the estimated
cost of monitoring the Tailings Management Areas at the Denison and
Stanrock sites and for treatment of water discharged from these
areas. The Company conducts its activities at both sites pursuant
to licenses issued by the CNSC. In the fourth quarter of 2020, an
adjustment of $3,595,000 was made to increase the reclamation
liability to reflect minor adjustments in future plans and changes
in the long-term discount rate used to arrive at the
Company’s best estimate of the present value of the total
reclamation cost that will be required in the future. Spending on
restoration activities at the Elliot Lake sites is funded from the
Elliot Lake reclamation trust fund. At December 31, 2020, the
amount of restricted cash and investments relating to the Elliot
Lake reclamation trust fund was $2,883,000.
McClean Lake and Midwest
– The McClean Lake
and Midwest operations are subject to environmental regulations as
set out by the Saskatchewan government and the CNSC. Cost estimates
of future decommissioning and reclamation activities are prepared
every 5 years and filed with the applicable regulatory authorities
for approval. The most recent approved reclamation plan is dated
March 2016 and the Company’s best estimate of its share of
the present value of the total reclamation liability is derived
from this plan. In the fourth quarter of 2020, the Company
increased the liability by $1,787,000 to reflect changes in the
long-term discount rate used to estimate the present value of the
reclamation liability. The majority of the reclamation costs are
expected to be incurred between 2038 and 2056.
Under the
Mineral Industry Environmental
Protection Regulations, 1996, the Company is required to
provide its pro-rata share of financial assurances to the Province
of Saskatchewan. Under the March 2016 approved plan, the Company
has put in place financial assurances of $24,135,000, providing
irrevocable standby letters of credit from BNS in favour of
Saskatchewan’s Ministry of Environment. At present, to
provide the required standby letters of credit, the Company is
utilizing the full capacity of the 2021 Credit Facility and has
committed an additional $135,000 with BNS as restricted cash
collateral.
FINANCIAL INSTRUMENTS
|
|
Financial
|
|
Fair
|
|
December
31,
|
|
December
31,
|
|
|
Instrument
|
|
Value
|
|
2020
|
|
2019
|
(in
thousands)
|
|
Category (1)
|
|
Hierarchy
|
|
Fair
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
Cash and
equivalents
|
|
Category
B
|
|
|
$
|
24,992
|
$
|
8,190
|
Trade and
other receivables
|
|
Category
B
|
|
|
|
3,374
|
|
4,023
|
Investments
|
|
|
|
|
|
|
|
|
Equity
instruments (shares)
|
|
Category
A
|
|
Level
1
|
|
16,657
|
|
11,971
|
Equity
instruments (warrants)
|
|
Category
A
|
|
Level
2
|
|
293
|
|
133
|
Restricted
cash and equivalents
|
|
|
|
|
|
|
|
|
Elliot Lake
reclamation trust fund
Credit
facility pledged assets
Reclamation
letter of credit collateral
|
|
Category
B
Category
B
Category
B
|
|
|
|
2,883
9,000
135
|
|
2,859
9,000
135
|
|
|
|
|
|
$
|
57,334
|
$
|
36,311
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
Account
payable and accrued liabilities
|
|
Category
C
|
|
|
|
7,178
|
|
7,930
|
Debt
obligations
|
|
Category
C
|
|
|
|
615
|
|
1,002
|
|
|
|
|
|
$
|
7,793
|
$
|
8,932
|
Notes:
1.
Financial instrument
designations are as follows: Category A=Financial assets and
liabilities at fair value through profit and loss; Category
B=Financial assets at amortized cost; Category C=Financial
liabilities at amortized cost.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The Company is
exposed to credit risk and liquidity risk in relation to its
financial instruments. Its credit risk in relation to its cash and
cash equivalents, and restricted cash and cash equivalents is
limited by dealing with credit worthy financial institutions. The
Company’s trade and other receivables balance relates to a
small number of customers who are considered credit worthy and with
whom the Company has established a relationship through its past
dealings.
Liquidity risk,
in which the Company may encounter difficulties in meeting
obligations associated with its financial liabilities as they
become due, is managed through the Company’s planning and
budgeting process, which determines the funds required to support
the Company’s normal operating requirements on an ongoing
basis. The Company ensures that there is sufficient committed
capital to meet its short-term business requirements, taking into
account its anticipated cash flows from operations, its holdings of
cash and cash equivalents, debt instruments and equity investments
and its access to credit facilities and capital markets, if
required.
The Company's
investments that are designated as financial assets at fair value
through profit or loss have resulted in other income of $5,046,000
during 2020 (2019 – other income of $4,182,000). See OTHER
INCOME AND EXPENSES above for further details.
TRANSACTIONS WITH RELATED PARTIES
Uranium Participation Corporation
The
Company’s current management services agreement with UPC
(‘MSA’) has a term of five years (the
‘Term’), expiring on March 31, 2024. Under the MSA,
Denison receives the following management fees from UPC: a) a base
fee of $400,000 per annum, payable in equal quarterly installments;
b) a variable fee equal to (i) 0.3% per annum of UPC’s total
assets in excess of $100 million and up to and including $500
million, and (ii) 0.2% per annum of UPC’s total assets in
excess of $500 million; c) a fee, at the discretion of the Board,
for on-going monitoring or work associated with a transaction or
arrangement (other than a financing, or the acquisition of or sale
of 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 years ended:
|
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
(in
thousands)
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Management Fee
Revenue
|
|
|
|
|
|
|
|
|
Base and variable
fees
|
|
|
|
|
$
|
2,011
|
$
|
1,822
|
Discretionary
fees
|
|
|
|
|
|
300
|
|
-
|
Commission
fees
|
|
|
|
|
|
293
|
|
144
|
|
|
|
|
|
$
|
2,604
|
$
|
1,966
|
At December 31,
2020, accounts receivable includes $265,000 (December 31, 2019
– $236,000) due from UPC with respect to the fees and
transactions discussed above.
Korea Electric Power Corporation (‘KEPCO’) and
KHNP
In connection
with KEPCO’s investment in Denison in June 2009, KEPCO and
Denison were parties to a strategic relationship agreement. In
December 2016, Denison was notified that KEPCO’s indirect
ownership of Denison’s shares had been transferred from an
affiliate of KEPCO to an affiliate of KEPCO’s wholly-owned
subsidiary, KHNP. In September 2017, Denison and KHNP’s
affiliate, KHNP Canada Energy Ltd. (‘KHNP Canada’)
entered into an amended and restated strategic relationship
agreement, in large part providing KHNP Canada with the same rights
as those previously given to KEPCO under the prior agreement,
including entitling KHNP Canada to: (a) subscribe for additional
common shares in Denison’s future public equity offerings;
(b) a right of first opportunity if Denison intends to sell any of
its substantial assets;
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
(c) a right to
participate in certain purchases of substantial assets which
Denison proposes to acquire; and (d) a right to nominate one
director to Denison’s board so long as its share interest in
Denison is above 5.0%.
As at December
31, 2020, KHNP, through its subsidiaries, holds 58,284,000 shares
of Denison representing a share interest of approximately 8.58%.
KHNP Canada is the holder of the majority of these Denison
shares.
KHNP Canada is
also the majority member of the KWULP. KWULP is a consortium of
investors that holds the non-Denison owned interests in Waterbury
Lake Uranium Corporation (‘WLUC’) and WLULP, entities
whose key asset is the Waterbury Lake property. At December 31,
2020, WLUC was owned by Denison (60%) and KWULP (40%) and the
partnership interests in WLULP were Denison (66.89%), KWULP
(33.09%) and WLUC, as general partner (0.02%). When a spending
program is approved, each of Denison and KWULP is required to fund
WLUC and WLULP based upon its respective ownership interests or be
diluted accordingly. Generally, spending program approval requires
75% of the limited partners’ voting interest.
In January 2014,
Denison agreed to allow KWULP to defer a decision regarding its
funding obligation to WLUC and WLULP until September 30, 2015 and
to not be immediately diluted as per the dilution provisions in the
relevant agreements (‘Dilution Agreement”). Instead,
under the Dilution Agreement, dilution would be delayed until
September 30, 2015 and then applied in each subsequent period, if
applicable, in accordance with the original agreements. In
exchange, Denison received authorization to approve spending
programs on the property, up to an aggregate $10,000,000, until
September 30, 2016 without obtaining approval from 75% of the
voting interest. Under subsequent amendments, Denison and KWULP
have agreed to extend Denison’s authorization under the
Dilution Agreement to approve program spending up to an aggregate
$15,000,000 until December 31, 2021.
In 2019, Denison
funded 100% of the approved fiscal 2019 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 65.92% to
66.57%, in two steps, which has been accounted for using effective
dates of May 31, 2019 and November 30, 2019. The increased
ownership interest resulted in Denison recording its increased
pro-rata share of the assets and liabilities of Waterbury Lake, the
majority of which relates to an addition to mineral property assets
of $448,000.
In 2020, Denison
funded 100% of the approved fiscal 2020 program for Waterbury Lake
and KWULP continued to dilute its interest in the WLULP. As a
result, Denison increased its interest in the WLULP from 66.57% to
66.89%, in two steps, which has been accounted for using effective
dates of June 30, 2020 and November 30, 2020. The increased
ownership interest resulted in Denison recording its increased
pro-rata share of the assets and liabilities of Waterbury Lake, the
majority of which relates to an addition to mineral property assets
of $223,000.
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:
●
During 2020, the Company
incurred investor relations, administrative service fees and
certain pass-through expenses of $206,000 (2019 – $217,000)
with Namdo Management Services Ltd, which shares a common director
with Denison. These services were incurred in the normal course of
operating a public company. At December 31, 2020, an amount of $nil
(December 31, 2019 - $nil) was due to this company.
●
In December 2018, the Company
lent GoviEx $250,000 pursuant to a credit agreement between the
parties. 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.
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.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The following
compensation was awarded to key management personnel:
|
|
|
|
Year
Ended
December
31,
|
|
Year
Ended
December
31,
|
|
(in
thousands)
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Salaries and
short-term employee benefits
|
|
|
|
|
$
|
(1,899)
|
$
|
(2,024)
|
Share-based
compensation
|
|
|
|
|
|
(1,507)
|
|
(1,881)
|
Termination
benefits
|
|
|
|
|
|
-
|
|
(481)
|
|
|
|
|
|
$
|
(3,406)
|
$
|
(4,386)
|
OFF-BALANCE SHEET ARRANGEMENTS
The Company does
not have any off-balance sheet arrangements.
SUBSEQUENT EVENTS
Bank of Nova Scotia Credit Facility Renewal
On January 14,
2021, the Company entered into an agreement with BNS to extend the
maturity date of the credit facility. Under the current terms of
the 2021 Credit Facility, the maturity date has been extended to
January 31, 2022 and the Company continues to have access to
credit up to $24,000,000 – the use of which is restricted to
non-financial letters of credit in support of reclamation
obligations. All other terms of the 2021 Credit Facility (tangible
net worth covenant, pledged cash, investments amount and security
for the facility) remain unchanged from those of the earlier credit
facility.
The 2021 Credit
Facility is subject to letter of credit and standby fees of 2.40%
(0.40% on the $9,000,000 pledged cash collateral) and 0.75%
respectively.
ATM Program Activity
Subsequent to
year-end, Denison, through its agents, issued 4,230,186 common
shares under its ATM program at an average price of $0.93 for
aggregate gross proceeds of $3,914,000. The Company paid total
commissions of $78,000, resulting in net proceeds after commissions
of $3,836,000.
Public Unit Offering
On February 19,
2021, the Company completed a public offering by way of a
prospectus supplement to the 2020 Shelf Prospectus of 31,593,950
units of the Company at US$0.91 per unit for gross proceeds of
$36,266,000 (US$28,750,000), including the full exercise of the
underwriters’ over-allotment option, accounting for 4,120,950
units. Each unit consists of one common share and one-half of one
transferable common share purchase warrant of the Company. Each
full warrant is exercisable to acquire one common share of the
Company at an exercise price of US$2.00 for 24 months after
issuance.
Private Placement of Flow Through Shares
On March 3, 2021,
the Company completed a private placement of 5,926,000 flow-through
common shares at a price of $1.35 on for gross proceeds of
$8,000,000. The income tax benefits of this issue will be renounced
to subscribers with an effective date of December 31,
2021.
OUTSTANDING SHARE DATA
At March 4, 2021,
the Company has the following share instruments issued and
outstanding: (1) 723,448,252 common shares; (2) stock options
entitling the holders to acquire 12,092,343 common shares; (3)
share units entitling the holders to convert the units into
7,060,398 common shares, and 15,796,975 share purchase warrants. On
a fully diluted basis, the Company would have 758,397,968 common
shares outstanding.
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The 2021 Outlook,
and discussion below, represents the Company’s best estimate
of its cash flows for the year:
(‘000)
|
|
2021 OUTLOOK(2)
|
|
Mining Segment
|
|
|
|
Mineral
Sales
|
|
3,709
|
|
Development &
Operations
|
|
(4,972)
|
|
Exploration
|
|
(4,178)
|
|
Evaluation
|
|
(19,413)
|
|
|
|
(24,854)
|
|
Closed Mines Segment
|
|
|
|
Closed Mines
Environmental Services
|
|
964
|
|
|
|
964
|
|
Corporate and Other Segment
|
|
|
|
UPC Management
Services
|
|
2,536
|
|
Corporate
Administration & Other
|
|
(5,444)
|
|
|
|
(2,908)
|
|
Net forecasted cash outflow (1)
|
|
$ (26,798)
|
|
Notes:
1.
Only material operations
shown.
2.
The outlook is prepared on a
cash basis.
MINERAL SALES
During 2021, the
MLJV plans to process SABRE ore expected to be recovered from the
SABRE test mining program (see DEVELOPMENT & OPERATIONS below)
at the McClean Lake Mill. The revenue from the sale of
Denison’s share of the resulting mill production is estimated
to be $3.7 million. The McClean Lake mill is not currently
operating due to the COVID-19 related temporary closure of the
Cigar Lake mine, which provides the mill with its primary source of
feed. The timing of the restart of the Cigar Lake mine is uncertain
and could impact the availability of the mill to process ore
recovered from the SABRE test mining program.
DEVELOPMENT & OPERATIONS
In 2021,
Denison’s share of operating and capital expenditures at the
Orano Canada operated MLJV and Midwest joint ventures
(‘MWJV’) are budgeted to be $3.7 million. Most of these
expenditures relate to McClean Lake – including $2.9 million
in respect of Denison’s share of SABRE related activities.
The 2021 SABRE program includes the planned completion of a
multi-year test mining development program – including the
execution of a field mining test at the McClean North orebody, the
completion of mill modifications necessary to facilitate the
processing of the ore generated by test mining activities, and the
expected milling costs related to the processing of the ore
recovered during the SABRE mining test.
Operating
expenditures in 2020 are also expected to include $802,000 for
reclamation costs related to Denison’s legacy mine sites in
Elliot Lake.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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EXPLORATION
The exploration
budget for 2021 is estimated at $4.2 million (Denison’s
share).
As Denison
continues to successfully advance the application of ISR mining at
the Phoenix deposit, exploration efforts are expected to continue
to focus on discovering high-grade unconformity deposits with ISR
potential.
The 2021
exploration program is expected to include drilling high-priority
exploration targets on projects near Phoenix. Significant effort
will be spent evaluating exploration target areas proximal to
Phoenix in hopes of discovering an ISR-amenable deposit that could
be brought into production, as a satellite operation, to supply the
planned Phoenix processing plant. This would provide opportunities
to leverage the existing site infrastructure at Phoenix, therefore
reducing the required capital expenditures associated with
developing a new deposit. To this end, exploration drill programs
are proposed for the Wheeler River, Moon Lake North, and Moon Lake
South projects – with target areas located within
approximately 10 kilometres of the planned Phoenix processing
plant. The total planned diamond drilling meterage for these
programs is approximately 11,100 metres.
Exploration
activities in 2021 are also expected to include non-operated
programs at McClean Lake (22.5% Denison) and Midwest (25.17%
Denison; Orano 74.83% and operator). These programs include diamond
drilling programs expected to be initiated in the first quarter of
2021.
EVALUATION
The Wheeler River
Joint Venture (‘WRJV’) has adopted an approach to
advancing the Project whereby completion of a formal FS would be
coordinated with the submission of a final EIS. This approach
respects the interactive nature of the EA consultation process,
allowing for the integration of outcomes from environmental
assessment, community consultation, and project design efforts. Our
current objectives target initiation of the formal FS process in
late 2021 and the submission of a draft EIS in early
2022.
In support of
these objectives, the WRJV approved a $24.0 million evaluation
budget for 2021 (100% basis), which is highlighted by the
resumption of the formal EA process, as well as the advancement of
engineering studies, metallurgical testing, and field programs.
Denison's share of the 2021 evaluation budget for Wheeler River,
net of operator fee recoveries, is $19.4 million. See Denison press
release dated February 8, 2021 for further details regarding the
2021 evaluation program.
Resumption of EA
process: Activities planned to
support the EA process in 2021 include the progression of
engagement activities, adapted to reflect COVID-19 protocols, to
facilitate information sharing with interested parties. Advancing
the EA process is also expected to involve the completion of
various third-party technical studies and Provincial and Federal
regulatory engagement ahead of the submission of a draft EIS, which
is currently targeted for early 2022. Significant work programs in
support of the EA process resumed in January
2021.
Advancement of ISR field
programs: The installation of a
5-spot Test Pattern (‘Test Pattern’), consisting of
commercial scale wells (‘CSWs’), is planned for
Phoenix. The Test Pattern is expected allow for the further
evaluation and confirmation of the ore body’s hydrogeological
characteristics. Installation of the Test Pattern is also expected
to support the finalization of the production well design pattern,
confirm cost estimates and designs for the CSWs, validate
permeability enhancement options, and provide the necessary
datasets for permitting and set-up of a lixiviant test in 2022. The
lixiviant test is expected to be a key de-risking milestone for the
Project – as it is intended to confirm technical feasibility
as well as verify the permeability, leachability, and containment
parameters needed for the successful application of the ISR mining
method at Phoenix. The 2021 field program is fully permitted, with
all approvals received from the provincial government to commence
work
Continuation of detailed ISR
metallurgical testing: Extensive laboratory studies replicating the ISR
process flowsheet are planned to test and optimize the mineral
processing aspects of the Phoenix operation. Studies are expected
to include additional core leach tests followed by UBS preparation,
through column leaching, to allow for bench scale tests planned to
simulate each unit of operation in the process
plant.
Progression of engineering
activities: Desktop and field
investigations are planned to finalize specific Project details
necessary for the EA and engineering inputs required to formally
initiate the FS. Areas of investigation are expected to include
site layout design and earthworks updates, electrical power
studies, borrow pit investigation, geotechnical analysis, final ISR
well designs and decommissioning plans.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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CLOSED MINES AND UPC MANAGEMENT SERVICES
Revenue from
operations at Denison’s Closed Mines group during 2021 is
budgeted to be $8.6 million, with operating, overhead, and capital
expenditures budgeted to be $7.6 million, resulting in a net
contribution of approximately $1.0 million.
Net management
fees from the management services agreement with UPC are budgeted
at $2.5 million in 2021. A portion of the management fees earned
from UPC is based on UPC’s net asset value and is therefore
dependent upon the spot price for uranium. Denison’s budget
for 2021 assumes a uranium spot price of US$34.02 per pound
U3O8 (estimated
average spot price for 2021 per UxC). Each US$2 per pound
U3O8 increase
(decrease) is expected to translate into approximately $0.1 million
in additional (reduced) management fees to Denison.
CORPORATE ADMINISTRATION AND OTHER
Cash corporate
administration expenses are budgeted to be $5.2 million in 2021,
and include head office salaries and benefits, office costs, audit
and regulatory costs, legal fees, investor relations expenses and
all other costs related to operating a public company with listings
in Canada and the United States.
In addition to
Corporate administration expenses in 2021, letter of credit and
standby fees relating to the 2021 Credit Facility are expected to
be approximately $400,000, which is expected to be partly offset by
estimated interest income of $122,000 on the Company’s
unrestricted and restricted cash and short-term investments, for a
net cash outflow of $278,000.
CONTROLS AND PROCEDURES
The Company
carried out an evaluation, under the supervision and with the
participation of its management, including the President and Chief
Executive Officer and the Executive Vice-President and Chief
Financial Officer, of the effectiveness of the design and operation
of the Company’s ‘disclosure controls and
procedures’ (as defined in the Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. Based upon that
evaluation, the President and Chief Executive Officer and the
Executive Vice-President and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures are
effective as of December 31, 2020.
The
Company’s management is responsible for establishing and
maintaining an adequate system of internal control over financial
reporting. Management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the
Internal Control –
Integrated Framework, 2013 issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Company’s internal
control over financial reporting was effective as of December 31,
2020.
There has not
been any change in the Company’s internal control over
financial reporting that occurred during 2020 that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over
financial
reporting.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation
of consolidated financial statements in accordance with IFRS
requires the use of certain critical accounting estimates and
judgements that affect the amounts reported. It also requires
management to exercise judgement in applying the Company’s
accounting policies. These judgements and estimates are based on
management’s best knowledge of the relevant facts and
circumstances taking into account previous experience. Although the
Company regularly reviews the estimates and judgements made that
affect these financial statements, actual results may be materially
different.
Significant
estimates and judgements made by management relate to:
Determination of a mineral property being sufficiently
advanced
The Company
follows a policy of capitalizing non-exploration related
expenditures on properties it considers to be sufficiently
advanced. Once a mineral property is determined to be sufficiently
advanced, that determination is irrevocable and the capitalization
policy continues to apply over the life of the property. In
determining whether or not a mineral property is sufficiently
advanced, management considers a number of factors, including, but
not limited to: current uranium market conditions, the quality of
resources identified, access to the resource, the suitability of
the resource to current mining methods, ease of permitting,
confidence in the jurisdiction in which the resource is located and
milling complexity.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Many of these
factors are subject to risks and uncertainties that can support a
“sufficiently advanced” determination as at one point
in time but not support it at another. The final determination
requires significant judgment on the part of the Company’s
management and directly impacts the carrying value of the
Company’s mineral properties.
Mineral property impairment reviews and impairment
adjustments
Mineral
properties are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. When an indicator is identified, the Company
determines the recoverable amount of the property, which is the
higher of an asset’s fair value less costs of disposal or
value in use. An impairment loss is recognized if the carrying
value exceeds the recoverable amount. The recoverable amount of a
mineral property may be determined by reference to estimated future
operating results and discounted net cash flows, current market
valuations of similar properties or a combination of the above. In
undertaking this review, management of the Company is required to
make significant estimates of, amongst other things: reserve and
resource amounts, future production and sale volumes, forecast
commodity prices, future operating, capital and reclamation costs
to the end of the mine’s life and current market valuations
from observable market data which may not be directly comparable.
These estimates are subject to various risks and uncertainties,
which may ultimately have an effect on the expected recoverable
amount of a specific mineral property asset. Changes in these
estimates could have a material impact on the carrying value of the
mineral property amounts and the impairment losses
recognized.
Deferred revenue – pre-sold toll milling –
classification
In February 2017,
Denison closed an arrangement with Anglo Pacific Group PLC and its
subsidiaries. Under the APG Arrangement, Denison monetized its
right to receive future toll milling cash receipts from July 1,
2016 onwards from the MLJV under the current toll milling agreement
with the CLJV for an upfront cash payment. The APG Arrangement
consisted of a loan structure and a stream arrangement. Significant
judgement was required to determine whether the APG Arrangement
should be accounted for as a financial obligation (i.e. debt) or
deferred revenue.
Key factors that
support the deferred revenue conclusion reached by management
include, but are not limited to: a) Limited recourse loan structure
– amounts due to APG are generally repayable only to the
extent of Denison’s share of the toll milling revenues earned
by the MLJV from the processing of the first 215 million pounds of
U3O8 from the Cigar
Lake mine on or after July 1, 2016, under the terms of the current
Cigar Lake toll milling agreement; and b) No warranty of the future
rate of production - no warranty is provided by Denison to APG
regarding the future rate of production at the Cigar Lake mine and
/ or the McClean Lake mill, or the amount and / or collectability
of cash receipts to be received by the MLJV in respect of toll
milling of Cigar Lake ore.
Deferred revenue – pre-sold toll milling – revenue
recognition
In February 2017,
Denison closed the APG Arrangement and effectively monetized its
right to receive specified future toll milling cash receipts from
the MLJV related to the current toll milling agreement with the
CLJV. In exchange, Denison received a net up-front payment of
$39,980,000 which has been accounted for as a deferred revenue
liability as at the transaction close date.
Under IFRS 15,
the Company is required to recognize a revenue component and a
financing component as it draws down the deferred revenue
associated with the APG Arrangement over the life of the specified
toll milling production included in the APG Arrangement. In
estimating both of these components, the Company is required to
make assumptions relating to the future toll milling production
volume associated with Cigar Lake Phase 1 and 2 ore reserves and
resources (to end of mine life) and estimates of the annual timing
of that production. Changes in these estimates affect the
underlying production profile which in turn affects the average
toll milling drawdown rate used to recognize revenue.
When the average
toll milling drawdown rate is changed, the impact is reflected on a
life-to-date production basis with a retroactive adjustment to
revenue recorded in the current period. Going forward, each time
the Company updates its estimates of the underlying production
profile for the APG Arrangement (typically in the quarter that
information relating to Cigar Lake uranium resource updates and /
or production schedules becomes publicly available), retroactive
adjustments to revenue will be recorded in the period that the
revised estimate is determined – such adjustments, which are
non-cash in nature, could be material.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Deferred tax assets and liabilities
Deferred tax
assets and liabilities are computed in respect of taxes that are
based on taxable profit. Taxable profit will often differ from
accounting profit and management may need to exercise judgement to
determine whether some taxes are income taxes (and subject to
deferred tax accounting) or operating expenses.
Deferred tax
assets and liabilities are measured using enacted or substantively
enacted tax rates expected to apply when the temporary differences
between accounting carrying values and tax basis are expected to be
recovered or settled. The determination of the ability of the
Company to utilize tax loss carry forwards to offset deferred tax
liabilities requires management to exercise judgment and make
certain assumptions about the future performance of the Company.
Management is required to assess whether it is
“probable” that the Company will benefit from these
prior losses and other deferred tax assets. Changes in economic
conditions, commodity prices and other factors could result in
revisions to the estimates of the benefits to be realized or the
timing of utilizing the losses.
Reclamation obligations
Asset retirement
obligations are recorded as a liability when the asset is initially
constructed or a constructive or legal obligation exists. The
valuation of the liability typically involves identifying costs to
be incurred in the future and discounting them to the present using
an appropriate discount rate for the liability. The determination
of future costs involves a number of estimates relating to timing,
type of costs, mine closure plans, and review of potential methods
and technical advancements. Furthermore, due to uncertainties
concerning environmental remediation, the ultimate cost of the
Company’s decommissioning liability could differ materially
from amounts provided. The estimate of the Company’s
obligation is subject to change due to amendments to applicable
laws and regulations and as new information concerning the
Company’s operations becomes available. The Company is not
able to determine the impact on its financial position, if any, of
environmental laws and regulations that may be enacted in the
future.
RISK FACTORS
There are a
number of factors that could negatively affect Denison’s
business and the value of Denison’s common shares (the
‘Shares’), including the factors listed below. The
following information pertains to the outlook and conditions
currently known to Denison that could have a material impact on the
financial condition of Denison. Other factors may arise in the
future that are currently not foreseen by management of Denison,
which may present additional risks in the future. Current and
prospective security holders of Denison should carefully consider
these risk factors.
Capital Intensive Industry and Uncertainty of Funding
The exploration
and development of mineral properties and any operation of mines
and facilities requires a substantial amount of capital and the
ability of the Company to proceed with any of its plans with
respect thereto depends on its ability to obtain financing through
joint ventures, equity financing, debt financing or other means.
The Company intends to use the proceeds from its October 2020
Offering, 2020 FT Offering, and ongoing ATM issuances of its Shares
to fund the Company’s business activities planned for 2021,
as well as for general working capital purposes; however, the
Company’s ability to achieve such plans and objectives could
change as a result of a number of internal and external factors,
such as continued or new impacts of COVID-19, the impact that
results from continued exploration and evaluation activities may
have on the Company’s future evaluation and development plans
and anticipated costs and timelines. There is no assurance that the
proceeds from such prior offerings will be sufficient to meet the
stated objectives.
In addition to
fund additional activities, including future exploration,
evaluation, development and construction activities, the Company
will require additional financing. General market conditions,
volatile uranium markets, a claim against the Company, a
significant disruption to the Company’s business or
operations or other factors may make it difficult to secure
financing necessary to fund the substantial capital that is
typically required in order to continue to advance a mineral
project, such as the Wheeler River project or Waterbury Lake
project, through the testing, permitting and feasibility processes
to a production decision or to place a property, such as the
Wheeler River project or Waterbury Lake project, into commercial
production. Similarly, there is no certainty that the Company will
be able to fund additional exploration or development of the
Company’s projects or acquisition of new projects at any
particular time.
There is no
assurance that the Company will be successful in obtaining required
financing as and when needed on acceptable terms, and failure to
obtain such additional financing could result in the delay or
indefinite postponement of any or all of the Company’s
exploration, development or other growth initiatives or otherwise
have a material adverse impact on the Company’s financial
condition and/or ability to continue as a going
concern.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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COVID-19 Outbreaks
The COVID-19
pandemic has caused, and may cause further, disruptions to the
Company’s business and operational plans. Such disruptions
may result from (i) restrictions that governments and communities
impose to address the COVID-19 outbreak, (ii) restrictions that the
Company and its contractors and subcontractors impose to ensure the
safety of employees and others, (iii) shortages of employees and/or
unavailability of contractors and subcontractors, and/or (iv)
interruption of supplies from third parties upon which the Company
relies. It is presently not possible to predict the likelihood,
extent or duration of any such disruption. Any such disruption may
have a material adverse effect on the Company’s business,
financial condition and results of operations, which could be rapid
and unexpected. These disruptions may severely impact the
Company’s ability to carry out its business plans for 2021
and beyond.
Global Financial Conditions
Global financial
conditions are subject to volatility arising from international
geopolitical developments and global economic phenomenon, as well
as general financial market turbulence, including the significant
market reaction to the onset of the COVID-19 pandemic in 2020,
resulting in a significant reduction in in many major market
indices, and continuing market uncertainty and volatility. Access
to public financing and credit can be negatively impacted by the
effect of these events on Canadian and global credit markets. The
health of the global financing and credit markets may impact the
ability of Denison to obtain equity or debt financing in the future
and the terms at which financing or credit is available to Denison.
These instances of volatility and market turmoil could adversely
impact Denison's operations and the trading price of the
Shares.
Speculative Nature of Exploration and
Development
Exploration for
minerals and the development of mineral properties is speculative,
and involves significant uncertainties and financial risks that
even a combination of careful evaluation, experience and technical
knowledge may not eliminate. While the discovery of an ore body may
result in substantial rewards, few properties which are explored
prove to return the discovery of a commercially mineable deposit
and/or are ultimately developed into producing mines. As at the
date hereof, many of Denison’s projects are preliminary in
nature and mineral resource estimates include inferred mineral
resources, which are considered too speculative geologically to
have the economic considerations applied that would enable them to
be categorized as mineral reserves. Mineral resources that are not
mineral reserves do not have demonstrated economic viability. Major
expenses may be required to properly evaluate the prospectivity of
an exploration property, to develop new ore bodies and to estimate
mineral resources and establish mineral reserves. There is no
assurance that the Company’s uranium deposits are
commercially mineable.
Imprecision of Mineral Reserve and Resource Estimates
Mineral reserve
and resource figures are estimates, and no assurances can be given
that the estimated quantities of uranium are in the ground and
could be produced or that Denison will receive the prices assumed
in determining its mineral reserves. Such estimates are expressions
of judgment based on knowledge, mining experience, analysis of
drilling results and industry best practices. Valid estimates made
at a given time may significantly change when new information
becomes available. While Denison believes that the Company’s
estimates of mineral reserves and mineral resources are well
established and reflect management’s best estimates, by their
nature, mineral reserve and resource estimates are imprecise and
depend, to a certain extent, upon statistical inferences and
geological interpretations, which may ultimately prove inaccurate.
Furthermore, market price fluctuations, as well as increased
capital or production costs or reduced recovery rates, may render
mineral reserves and resources uneconomic and may ultimately result
in a restatement of mineral reserves and resources. The evaluation
of mineral reserves or resources is always influenced by economic
and technological factors, which may change over time.
Risks of, and Market Impacts on, Developing Mineral
Properties
Denison’s
uranium production is dependent in part on the successful
development of its known ore bodies, discovery of new ore bodies
and/or revival of previously existing mining operations. It is
impossible to ensure that Denison’s current exploration and
development programs will result in profitable commercial mining
operations. Where the Company has been able to estimate the
existence of mineral resources and mineral reserves, such as for
the Wheeler River project, substantial expenditures are still
required to establish economic feasibility for commercial
development and to obtain the required environmental approvals,
permits and assets necessary to commence commercial
operations.
Development
projects are subject to the completion of successful feasibility
studies, engineering studies and environmental assessments, the
issuance of necessary governmental permits and the availability of
adequate financing.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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The economic
feasibility of development projects is based upon many factors,
including, among others: the accuracy of mineral reserve and
resource estimates; metallurgical recoveries; capital and operating
costs of such projects; government regulations relating to prices,
taxes, royalties, infrastructure, land tenure, land use, importing
and exporting, and environmental protection; political and economic
climate; and uranium prices, which are historically
cyclical.
Subject to the
availability of capital, if a feasibility study is completed for
the Wheeler River project, such a feasibility study, and any
estimates of mineral reserves and mineral resources, development
costs, operating costs and estimates of future cash flow contained
therein, will be based on Denison’s interpretation of the
information available at the time. Development projects have no
operating history upon which to base developmental and operational
estimates. Particularly for development projects, economic analyses
and feasibility studies contain estimates based upon many factors,
including estimates of mineral reserves, the interpretation of
geologic and engineering data, anticipated tonnage and grades of
ore to be mined and processed, the configuration of the ore body,
expected recovery rates of uranium from the ore, estimated
operating costs, anticipated climatic conditions and other factors.
As a result, it is possible that actual capital and operating costs
and economic returns will differ significantly from those estimated
for a project prior to production. For example, the capital and
operating cost projections and related economic indicators in the
Wheeler PFS Report and Waterbury PEA may vary significantly from
the capital and operating costs and economic returns estimated by a
final feasibility study or actual expenditures.
The decision as
to whether a property, such as Wheeler River or Waterbury Lake,
contains a commercial mineral deposit and should be brought into
production will depend upon the results of exploration and
evaluation programs and/or feasibility studies, and the
recommendations of duly qualified engineers and/or geologists, all
of which involves significant expense and risk.
It is not unusual
in the mining industry for new mining operations to take longer
than originally anticipated to bring into production, and to
require more capital than anticipated. Any of the following events,
among others, could affect the profitability or economic
feasibility of a project or delay or stop its advancement:
unavailability of necessary capital, unexpected problems during the
start-up phase delaying production, unanticipated changes in grade
and tonnes of ore to be mined and processed, unanticipated adverse
geological conditions, unanticipated metallurgical recovery
problems, incorrect data on which engineering assumptions are made,
unavailability of labour, increased costs of processing and
refining facilities, unavailability of economic sources of power
and water, unanticipated transportation costs, changes in
government regulations (including regulations with respect to the
environment, prices, royalties, duties, taxes, permitting,
restrictions on production, quotas on exportation of minerals,
environmental, etc.), fluctuations in uranium prices, and
accidents, labour actions and force majeure events.
The ability to
sell and profit from the sale of any eventual mineral production
from a property will be subject to the prevailing conditions in the
applicable marketplace at the time of sale. The demand for uranium
and other minerals is subject to global economic activity and
changing attitudes of consumers and other end-users’ demand.
Many of these factors are beyond the control of a mining company
and therefore represent a market risk which could impact the long
term viability of Denison and its operations.
Denison has a History of Negative Operating Cash Flow
Denison has a history of negative operating cash
flow for recent past financial reporting periods. In
addition, the Company has committed a portion of its short to
medium term cash flows in connection with the APG Arrangement.
Denison anticipates that it will
continue to have negative operating cash flow until such time, if
at all, its Wheeler River project goes into production. To the
extent that Denison has negative operating cash flow in future
periods, Denison may need to allocate a portion of its cash
reserves or other financial or non-financial assets to fund such
negative cash flow. Denison may also be required to raise
additional funds through the issuance of equity or debt securities.
There can be no assurance that additional capital or other types of
financing will be available when needed or that these financings
will be on terms favourable to Denison.
Risks Associated with the Selection of Novel Mining
Methods
As disclosed in
the Wheeler PFS Report, Denison has selected the ISR mining method
for production at the Phoenix deposit. While test work completed to
date indicates that ground conditions and the mineral reserves
estimated to be contained within the deposit are amenable to
extraction by way of ISR, actual conditions could be materially
different from those estimated based on the Company’s
technical studies completed to date. While industry best practices
have been utilized in the development of its estimates, actual
results may differ significantly. Denison will need to complete
substantial additional work to further advance and/or confirm its
current estimates and projections for development to the level of a
feasibility study. As a result, it is possible that actual costs
and economic returns of any mining operations may differ materially
from Denison’s best estimates.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Dependence on Obtaining Licenses, and other Regulatory and Policy
Risks
Uranium mining
and milling operations and exploration activities, as well as the
transportation and handling of the products produced, are subject
to extensive regulation by federal, provincial and state
governments including the Saskatchewan Government and the Canadian
Nuclear Safety Commission. Such regulations relate to production,
development, exploration, exports, imports, taxes and royalties,
labour standards, occupational health, waste disposal, protection
and remediation of the environment, mine decommissioning and
reclamation, mine safety, toxic substances, transportation safety
and emergency response, and other matters. Compliance with such
laws and regulations is currently, and has historically, increased
the costs of exploring, drilling, developing, constructing,
operating and closing Denison’s mines and processing
facilities. It is possible that the costs, delays and other effects
associated with such laws and regulations may impact
Denison’s decision with respect to exploration and
development properties, including whether to proceed with
exploration or development, or that such laws and regulations may
result in Denison incurring significant costs to remediate or
decommission properties that do not comply with applicable
environmental standards at such time.
The development
of mines and related facilities is contingent upon governmental
approvals that are complex and time consuming to obtain and which
involve multiple governmental agencies. Environmental and
regulatory review has become a long, complex and uncertain process
that can cause potentially significant delays. Obtaining these
government approvals includes among other things, obtaining
environmental assessments and engaging with interested parties. See
“Engagement with Canada’s First Nations and
Métis” for more information regarding Denison’s
community engagement. In addition, future changes in governments,
regulations and policies, such as those affecting Denison’s
mining operations, uranium transport and international trade, could
materially and adversely affect Denison’s results of
operations and financial condition in a particular period or its
long-term business prospects.
The ability of
the Company to obtain and maintain permits and approvals and to
successfully explore and evaluate properties and/or develop and
operate mines may be adversely affected by real or perceived
impacts associated with its activities that affect the environment
and human health and safety at its projects and in the surrounding
communities. The real or perceived impacts of the activities of
other mining companies, locally or globally, may also adversely
affect our ability to obtain and maintain permits and approvals.
The Company is uncertain as to whether all necessary permits will
be obtained or renewed on acceptable terms or in a timely manner.
Any significant delays in obtaining or renewing such permits or
licences in the future could have a material adverse effect on
Denison.
Denison suspended
certain activities at Wheeler River during 2020, including the EA
process, which is on the critical path to achieving the project
development schedule outlined in the PFS. An important part of the
EA process involves extensive engagement and consultation with
various interested parties. Accordingly, the decision to suspend
the EA was motivated by the significant social and economic
disruptions that emerged at the onset of the COVID-19 pandemic, and
other fiscal prudence measures. While the EA process has resumed,
the Company is not currently able to estimate the impact to the
project development schedule, cost estimates or other project
development assumptions and projections outlined in the PFS, and
users are specifically cautioned against relying on the estimates
provided therein regarding the start of pre-production activities
in 2021 and first production in 2024.
Denison expends
significant financial and managerial resources to comply with such
laws and regulations. Denison anticipates it will have to continue
to do so as the historic trend toward stricter government
regulation may continue. Because legal requirements are frequently
changing and subject to interpretation, Denison is unable to
predict the ultimate cost of compliance with these requirements or
their effect on operations. While the Company has taken great care
to ensure full compliance with its legal obligations, there can be
no assurance that the Company has been or will be in full
compliance with all of these laws and regulations, or with all
permits and approvals that it is required to have.
Failure to comply
with applicable laws, regulations and permitting requirements, even
inadvertently, may result in enforcement actions. These actions may
result in orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed, and may include
corrective measures requiring capital expenditures, installation of
additional equipment or remedial actions – which may have a
material adverse effect on the Company. Companies engaged in
uranium exploration, evaluation, mining or milling activities may
be required to compensate others who suffer loss or damage by
reason of such activities and may have civil or criminal fines or
penalties imposed for violations of applicable laws or
regulations.
Engagement with Canada’s First Nations and
Métis
First Nations and
Métis rights, entitlements and title claims may impact
Denison’s ability and that of its joint venture partners to
pursue exploration, development and mining at its Saskatchewan
properties. Pursuant to historical treaties, First Nations in
northern Saskatchewan ceded title to most traditional lands but
continue to assert title to the minerals within the lands.
Métis people have not signed treaties; they assert Aboriginal
rights throughout Saskatchewan, including Aboriginal title over
most if not all of the Company’s project lands.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Managing
relations with the local First Nations and Métis communities
and governments is a matter of paramount importance to Denison.
Engagement with, and consideration of the rights of, potentially
affected Indigenous peoples may require accommodations –
including undertakings regarding funding, contracting,
environmental practices, employment and other matters and can be
time consuming and challenging. This may affect the timetable and
costs of exploration, evaluation and development of the
Company’s projects.
The
Company’s relationships with various interested parties are
critical to ensure the future success of its existing operations
and the construction and development of its projects. There is an
increasing level of public concern relating to the perceived effect
of mining activities on the environment and on parties impacted by
such activities. Adverse publicity relating to the mining industry
generated by non-governmental organizations and others could have
an adverse effect on the Company’s reputation or financial
condition and may impact its relationship with various interested
parties. While the Company is committed to operating in a socially
responsible manner, there is no guarantee that the Company’s
efforts in this regard will be successful or mitigate this
potential risk.
The inability of
the Company to maintain positive relationships with interested
parties, including local First Nations and Métis, may result
in additional obstacles to permitting, increased legal challenges,
or other disruptions to the Company’s exploration,
development and production plans, and could have a significant
adverse impact on the Company’s share price and financial
condition.
Environmental, Health and Safety Risks
Denison has
expended significant financial and managerial resources to comply
with environmental protection laws, regulations and permitting
requirements in each jurisdiction where it operates, and
anticipates that it will be required to continue to do so in the
future as the historical trend toward stricter environmental
regulation may continue. The uranium industry is subject to not
only the worker health, safety and environmental risks associated
with all mining businesses, including potential liabilities to
third parties for environmental damage, but also to additional
risks uniquely associated with uranium mining and processing. The
possibility of more stringent regulations exists in the areas of
worker health and safety, the disposition of wastes, the
decommissioning and reclamation of mining and processing sites, and
other environmental matters each of which could have a material
adverse effect on the costs or the viability of a particular
project.
Denison’s
facilities operate under various operating and environmental
permits, licences and approvals that contain conditions that must
be met, and Denison’s right to pursue its development plans
is dependent upon receipt of, and compliance with, additional
permits, licences and approvals. Failure to obtain such permits,
licenses and approvals and/or meet any conditions set forth therein
could have a material adverse effect on Denison’s financial
condition or results of operations.
Although the
Company believes its operations are in compliance, in all material
respects, with all relevant permits, licences and regulations
involving worker health and safety as well as the environment,
there can be no assurance regarding continued compliance or ability
of the Company to meet stricter environmental regulation, which may
also require the expenditure of significant additional financial
and managerial resources.
Mining companies
are often targets of actions by non-governmental organizations and
environmental groups in the jurisdictions in which they operate.
Such organizations and groups may take actions in the future to
disrupt Denison's operations. They may also apply pressure to
local, regional and national government officials to take actions
which are adverse to Denison's operations. Such actions could have
an adverse effect on Denison's ability to advance its projects and,
as a result, on its financial position and results.
Global Demand and International Trade Restrictions
The international
nuclear fuel industry, including the supply of uranium
concentrates, is relatively small compared to other minerals, and
is generally highly competitive and heavily regulated. Worldwide
demand for uranium is directly tied to the demand for electricity
produced by the nuclear power industry, which is also subject to
extensive government regulation and policies. In addition, the
international marketing of uranium is subject to governmental
policies and certain trade restrictions. For example, the supply
and marketing of uranium from Russia is limited by international
trade agreements.
As an example,
over the past two years, policy related reviews in the United
States have impacted the nuclear fuel market.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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In 2018, certain
uranium producers filed a petition with the U.S. Department of
Commerce (“DOC”) to investigate the import of uranium
into the U.S. under Section 232 of the 1962 Trade Expansion Act.
The Nuclear Fuels Working Group convened to review the matter
recommended that the US build a strategic uranium reserve, and in
December 2020, the US Congress passed a Bill that included funding
for the first year of the acquisitions for the strategic reserve of
uranium. This long-awaited resolution ended a period of uncertainty
and disruption in the nuclear fuel market.
Similarly, a 2020
extension to the Russian Suspension Agreement ended a period of
uncertainty in the uranium market regarding potential changes to
restrictions on Russian uranium supplies entering the United
States.
The uncertainty
surrounding these trade matters are believed to have impacted the
uranium purchasing activities of nuclear utilities, especially in
the U.S., and consequently negatively impacted the market price of
uranium and the uranium industry as a whole.
In general, trade
agreements, governmental policies and/or trade restrictions are
beyond the control of Denison and may affect the supply of uranium
available for use in markets like the United States and Europe,
which are currently the largest markets for uranium in the world.
Similarly, trade restrictions or foreign policy have the potential
to impact the ability to supply uranium to developing markets, such
as China and India. If substantial changes are made to regulations
affecting the global marketing and supply of uranium, the
Company’s business, financial condition and results of
operations may be materially adversely affected.
Volatility and Sensitivity to Market Prices
The value of the
Company’s mineral resources, mineral reserves and estimates
of the viability of future production for its projects is heavily
influenced by long and short term market prices of U3O8. Historically,
these prices have seen significant fluctuations, and have been and
will continue to be affected by numerous factors beyond
Denison’s control. Such factors include, among others: demand
for nuclear power, political, economic and social conditions in
uranium producing and consuming countries, public and political
response to nuclear incidents, reprocessing of used reactor fuel
and the re-enrichment of depleted uranium tails, sales of excess
civilian and military inventories (including from the dismantling
of nuclear weapons) by governments and industry participants,
uranium supplies from other secondary sources, and production
levels and costs of production from primary uranium suppliers.
Uranium prices failing to reach or sustain projected levels can
impact operations by requiring a reassessment of the economic
viability of the Company’s projects, and such reassessment
alone may cause substantial delays and/or interruptions in project
development, which could have a material adverse effect on the
results of operations and financial condition of
Denison.
Public Acceptance of Nuclear Energy and Competition from Other
Energy Sources
Growth of the
uranium and nuclear power industry will depend upon continued and
increased acceptance of nuclear technology as a clean means of
generating electricity. Because of unique political, technological
and environmental factors that affect the nuclear industry,
including the risk of a nuclear incident, the industry is subject
to public opinion risks that could have an adverse impact on the
demand for nuclear power and increase the regulation of the nuclear
power industry. Nuclear energy competes with other sources of
energy, including oil, natural gas, coal and hydro-electricity.
These other energy sources are, to some extent, interchangeable
with nuclear energy, particularly over the longer term. Technical
advancements in, and government subsidies for, renewable and other
alternate forms of energy, such as wind and solar power, could make
these forms of energy more commercially viable and put additional
pressure on the demand for uranium concentrates. Sustained lower
prices of alternate forms of energy may result in lower demand for
uranium concentrates.
Current estimates
project increases in the world’s nuclear power generating
capacities, primarily as a result of a significant number of
nuclear reactors that are under construction, planned, or proposed
in China, India and various other countries around the world.
Market projections for future demand for uranium are based on
various assumptions regarding the rate of construction and approval
of new nuclear power plants, as well as continued public acceptance
of nuclear energy around the world. The rationale for adopting
nuclear energy can be varied, but often includes the clean and
environmentally friendly operation of nuclear power plants, as well
as the affordability and round-the-clock reliability of nuclear
power. A change in public sentiment regarding nuclear energy could
have a material impact on the number of nuclear power plants under
construction, planned or proposed, which could have a material
impact on the market’s and the Company’s expectations
for the future demand for uranium and the future price of
uranium.
Market Price of Shares
The market price
of Denison’s securities may experience wide fluctuations
which may not necessarily be related to the financial condition,
operating performance, underlying asset values or prospects of the
Company. These factors include macroeconomic developments in North
America and globally, market perceptions of the attractiveness of
particular industries
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MANAGEMENT’S DISCUSSION & ANALYSIS
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– including
mining and nuclear energy – and volatile trading due to
unpredictable general market or trading sentiments. The market
price of the Company’s securities may be affected by many
other variables which are not directly related to our success and
are, therefore, not within our control, including other
developments that affect the market for all resource sector
securities, the breadth of the public market for the shares and the
attractiveness of alternative investments.
The market price
of Denison’s securities are also likely to increase or
decrease in response to a number of events and factors, including:
our operating performance and the performance of competitors and
other similar companies; volatility in metal prices; the arrival or
departure of key personnel; the number of shares to be publicly
traded after an offering pursuant to any prospectus supplement; the
public’s reaction to the Company’s press releases,
material change reports, other public announcements and our filings
with the various securities regulatory authorities; changes in
earnings estimates or recommendations by research analysts who
track Denison’s shares or the shares of other companies in
the resource sector; public sentiment regarding nuclear energy or
uranium mining; changes in general economic and/or political
conditions; acquisitions, strategic alliances or joint ventures
involving us or our competitors; and the other risk factors listed
herein.
Financial markets
have recently experienced significant price and volume fluctuations
that have particularly affected the market prices of equity
securities of companies. With respect to the Company’s
shares, the trading price has recently increased significantly and
there is no assurance that this price increase will be sustained.
Accordingly, the market price of the shares may decline even if the
Company’s operating results, underlying asset values or
prospects have not changed. Additionally, these factors, as well as
other related factors, may cause decreases in asset values that are
deemed to be other than temporary, which may result in impairment
losses. There can be no assurance that continuing fluctuations in
price and volume will not occur. If such increased levels of
volatility and market turmoil continue, the Company’s
operations could be adversely impacted, and the trading price of
the shares may be materially adversely affected.
Other factors
unrelated to the performance of Denison that may have an effect on
the price of the securities of Denison include the lessening (or
increasing) in trading volume, exclusion (or inclusion) in market
indices, and general investor interest in Denison's securities.
Similarly, changes in the liquidity of Denison’s common
shares may limit the ability of some institutions to invest in (or
divest of) Denison's securities, and a substantial decline in the
liquidity and/or price of the securities of Denison that persists
for a significant period of time could cause Denison's securities
to be delisted from an exchange. If an active market for the
securities of Denison does not continue, the liquidity of an
investor's investment may be limited and the price of the
securities of the Company may decline such that investors may lose
their entire investment in the Company. As a result of any of these
factors, the market price of the securities of Denison at any given
point in time may not accurately reflect the long-term value of
Denison. Securities class-action litigation often has been brought
against companies following periods of volatility in the market
price of their securities. Denison may in the future be the target
of similar litigation. Securities litigation could result in
substantial costs and damages and divert management's attention and
resources.
Dilution from Further Issuances
While active in
exploring for new uranium discoveries in the Athabasca Basin
region, Denison’s present focus is on advancing Wheeler River
to a development decision, with the potential to become the next
large scale uranium producer in Canada. Denison will require
additional funds to further such activities.
Denison may sell
additional equity securities (including through the sale of
securities convertible into common shares) and may issue additional
debt or equity securities to finance its exploration, evaluation,
development, construction, and other operations, acquisitions or
other projects. Denison is authorized to issue an unlimited number
of common shares. Denison cannot predict the size of future sales
and issuances of debt or equity securities or the effect, if any,
that future sales and issuances of debt or equity securities will
have on the market price of the common shares. Sales or issuances
of a substantial number of equity securities, or the perception
that such sales could occur, may adversely affect prevailing market
prices for the common shares. With any additional sale or issuance
of equity securities, investors may suffer dilution of their voting
power and it could reduce the value of their
investment.
Reliance on Other Operators
At some of its
properties, Denison is not the operator and therefore is not in
control of all of the activities and operations at the site. As a
result, Denison is and will be, to a certain extent, dependent on
the operators for the nature and timing of activities related to
these properties and may be unable to direct or control such
activities.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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As an example,
Orano Canada is the operator and majority owner of the MLJV and
MWJV in Saskatchewan, Canada. The McClean Lake mill employs
unionized workers who work under collective agreements. Orano
Canada, as the operator, is responsible for most operational and
production decisions and all dealings with unionized employees.
Orano Canada may not be successful in its attempts to renegotiate
the collective agreements, which may impact mill and mining
operations. Similarly, Orano Canada is responsible for all
licensing and dealings with various regulatory authorities. Orano
Canada maintains the regulatory licences in order to operate the
McClean Lake mill, all of which are subject to renewal from time to
time and are required in order for the mill to operate in
compliance with applicable laws and regulations. Any lengthy work
stoppages or disruption to the operation of the mill or mining
operations as a result of a licensing matter or regulatory
compliance may have a material adverse impact on the
Company’s future cash flows, earnings, results of operations
and financial condition.
Reliance on Contractors and Experts
In various
aspects of its operations, Denison relies on the services,
expertise and recommendations of its service providers and their
employees and contractors, whom often are engaged at significant
expense to the Company. For example, the decision as to whether a
property contains a commercial mineral deposit and should be
brought into production will depend in large part upon the results
of exploration programs and/or feasibility studies, and the
recommendations of duly qualified third party engineers and/or
geologists. In addition, while Denison emphasizes the importance of
conducting operations in a safe and sustainable manner, it cannot
exert absolute control over the actions of these third parties when
providing services to Denison or otherwise operating on
Denison’s properties. Any material error, omission, act of
negligence or act resulting in environmental pollution, accidents
or spills, industrial and transportation accidents, work stoppages
or other actions could adversely affect the Company’s
operations and financial condition.
Benefits Not Realized From Transactions
Denison has
completed a number of transactions over the last several years,
including without limitation the acquisition of International
Enexco Ltd, the acquisition of Fission Energy Corp., the
acquisition of JNR Resources Inc., the sale of its mining assets
and operations located in the United States to Energy Fuels Inc.,
the sale of its mining assets and operations located in Mongolia to
Uranium Industry a.s., the sale of its mining assets and operations
located in Africa to GoviEx, the optioning of the Moore Lake
property to Skyharbour, the acquisition of an 80% interest in the
Hook-Carter property from ALX, the acquisition of an interest in
the Moon Lake property from CanAlaska, entering into the APG
Arrangement and the acquisition of Cameco’s interest in the
WRJV. Despite Denison’s belief that these transactions, and
others which may be completed in the future, will be in
Denison’s best interest and benefit the Company and
Denison’s shareholders, Denison may not realize the
anticipated benefits of such transactions or realize the full value
of the consideration paid or received to complete the transactions.
This could result in significant accounting impairments or
write-downs of the carrying values of mineral properties or other
assets and could adversely impact the Company and the price of its
Shares.
Inability to Exploit, Expand and Replace Mineral Reserves and
Resources
Denison’s
mineral reserves and resources at its Wheeler River, Waterbury
Lake, McClean Lake and Midwest projects are Denison’s
material future sources of possible uranium production. Unless
other mineral reserves or resources are discovered or acquired,
Denison’s sources of future production for uranium
concentrates will decrease over time if its current mineral
reserves and resources are depleted. There can be no assurance that
Denison’s future exploration, development and acquisition
efforts will be successful in replenishing its mineral reserves and
resources. In addition, while Denison believes that many of its
properties demonstrate development potential, there can be no
assurance that they can or will be successfully developed and put
into production in future years.
Competition for Properties
Significant
competition exists for the limited supply of mineral lands
available for acquisition. Participants in the mining business
include large established companies with long operating histories.
In certain circumstances, the Company may be at a disadvantage in
acquiring new properties as competitors may have greater financial
resources and more technical staff. Accordingly, there can be no
assurance that the Company will be able to compete successfully to
acquire new properties or that any such acquired assets would yield
resources or reserves or result in commercial mining
operations.
Property Title Risk
The Company has
investigated its rights to explore and exploit all of its material
properties and, to the best of its knowledge, those rights are in
good standing. However, no assurance can be given that such rights
will not be revoked, or significantly altered, to its detriment.
There can also be no assurance that the Company’s rights will
not be challenged or impugned by third parties, including the
Canadian federal, provincial and local governments, as well as by
First Nations and Métis.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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There is also a
risk that Denison's title to, or interest in, its properties may be
subject to defects or challenges. If such defects or challenges
cover a material portion of Denison's property, they could have a
material adverse effect on Denison's results of operations,
financial condition, reported mineral reserves and resources and/or
long -term business prospects.
Ability to Maintain Obligations under the 2021 Credit Facility and
Other Debt
The 2021 Credit
Facility only has a term of one year, and will need to be renewed
on or before January 31, 2022. There is no certainty what terms of
any renewal may be, or any assurance that such renewal will be made
available to Denison.
Denison is
required to satisfy certain financial covenants in order to
maintain its good standing under the 2021 Credit Facility. Denison
is also subject to a number of restrictive covenants under the 2021
Credit Facility and the APG Arrangement, such as restrictions on
Denison’s ability to incur additional indebtedness and sell,
transfer of otherwise dispose of material assets. Denison may from
time to time enter into other arrangements to borrow money in order
to fund its operations and expansion plans, and such arrangements
may include covenants that have similar obligations or that
restrict its business in some way. Events may occur in the future,
including events out of Denison's control, which could cause
Denison to fail to satisfy its obligations under the 2021 Credit
Facility, APG Arrangement or other debt instruments. In such
circumstances, the amounts drawn under Denison's debt agreements
may become due and payable before the agreed maturity date, and
Denison may not have the financial resources to repay such amounts
when due. The 2021 Credit Facility and APG Arrangement are secured
by DMI's main properties by a pledge of the shares of DMI. If
Denison were to default on its obligations under the 2021 Credit
Facility, APG Arrangement or other secured debt instruments in the
future, the lender(s) under such debt instruments could enforce
their security and seize significant portions of Denison's
assets.
Change of Control Restrictions
The APG
Arrangement and certain other of Denison’s agreements contain
provisions that could adversely impact Denison in the case of a
transaction that would result in a change of control of Denison or
certain of its subsidiaries. In the event that consent is required
from our counterparty and our counterparty chooses to withhold its
consent to a merger or acquisition, then such party could seek to
terminate certain agreements with Denison, including certain
agreements forming part of the APG Arrangement, or require Denison
to buy the counterparty’s rights back from them, which could
adversely affect Denison’s financial resources and prospects.
If applicable, these restrictive contractual provisions could delay
or discourage a change in control of our company that could
otherwise be beneficial to Denison or its
shareholders.
Decommissioning and Reclamation
As owner of the
Elliot Lake decommissioned sites and part owner of the McClean Lake
mill, McClean Lake mines, the Midwest uranium project and certain
exploration properties, and for so long as the Company remains an
owner thereof, the Company is obligated to eventually reclaim or
participate in the reclamation of such properties. Most, but not
all, of the Company’s reclamation obligations are secured,
and cash and other assets of the Company have been reserved to
secure this obligation. Although the Company’s financial
statements record a liability for the asset retirement obligation,
and the security requirements are periodically reviewed by
applicable regulatory authorities, there can be no assurance or
guarantee that the ultimate cost of such reclamation obligations
will not exceed the estimated liability contained on the
Company’s financial statements.
As
Denison’s properties approach or go into decommissioning,
regulatory review of the Company’s decommissioning plans may
result in additional decommissioning requirements, associated costs
and the requirement to provide additional financial assurances. It
is not possible to predict what level of decommissioning and
reclamation (and financial assurances relating thereto) may be
required from Denison in the future by regulatory
authorities.
Technical Innovation and Obsolescence
Requirements for
Denison’s products and services may be affected by
technological changes in nuclear reactors, enrichment and used
uranium fuel reprocessing. These technological changes could reduce
the demand for uranium or reduce the value of Denison’s
closed mines services to potential customers. In addition,
Denison’s competitors may adopt technological advancements
that give them an advantage over Denison.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Mining and Insurance
Denison’s
business is capital intensive and subject to a number of risks and
hazards, including environmental pollution, accidents or spills,
industrial and transportation accidents, labour disputes, changes
in the regulatory environment, natural phenomena (such as inclement
weather conditions, earthquakes, pit wall failures and cave-ins)
and encountering unusual or unexpected geological conditions. Many
of the foregoing risks and hazards could result in damage to, or
destruction of, Denison’s mineral properties or processing
facilities in which it has an interest; personal injury or death;
environmental damage; delays in or interruption of or cessation of
exploration, development, production or processing activities; or
costs, monetary losses and potential legal liability and adverse
governmental action. In addition, due to the radioactive nature of
the materials handled in uranium exploration, mining and
processing, as applicable, additional costs and risks are incurred
by Denison and its joint venture partners on a regular and ongoing
basis.
Although Denison
maintains insurance to cover some of these risks and hazards in
amounts it believes to be reasonable, such insurance may not
provide adequate coverage in the event of certain circumstances. No
assurance can be given that such insurance will continue to be
available, that it will be available at economically feasible
premiums, or that it will provide sufficient coverage for losses
related to these or other risks and hazards.
Denison may be
subject to liability or sustain loss for certain risks and hazards
against which it cannot insure or which it may reasonably elect not
to insure because of the cost. This lack of insurance coverage
could result in material economic harm to Denison.
Anti-Bribery and Anti-Corruption Laws
The Company is
subject to anti-bribery and anti-corruption laws, including the
Corruption of Foreign Public Officials Act (Canada) and the United
States Foreign Corrupt Practices
Act of 1977, as amended. Failure to comply with these laws
could subject the Company to, among other things, reputational
damage, civil or criminal penalties, other remedial measures and
legal expenses which could adversely affect the Company’s
business, results from operations, and financial condition. It may
not be possible for the Company to ensure compliance with
anti-bribery and anti-corruption laws in every jurisdiction in
which its employees, agents, sub-contractors or joint venture
partners are located or may be located in the future.
Climate Change
Due to changes in
local and global climatic conditions, many analysts and scientists
predict an increase in the frequency of extreme weather events such
as floods, droughts, forest and brush fires and extreme storms.
Such events could materially disrupt the Company’s
operations, particularly if they affect the Company’s sites,
impact local infrastructure or threaten the health and safety of
the Company’s employees and contractors. In addition,
reported warming trends could result in later freeze-ups and warmer
lake temperatures, affecting the Company’s winter exploration
programs at certain of its projects. Any such event could result in
material economic harm to Denison.
The Company is
focused on operating in a manner designed to minimize the
environmental impacts of its activities; however, environmental
impacts from mineral exploration and mining activities are
inevitable. Increased environmental regulation and/or the use of
fiscal policy by regulators in response to concerns over climate
change and other environmental impacts, such as additional taxes
levied on activities deemed harmful to the environment, could have
a material adverse effect on Denison’s financial condition or
results of operations.
Information Systems and Cyber Security
The Company's
operations depend upon the availability, capacity, reliability and
security of its information technology (‘IT‘)
infrastructure, and its ability to expand and update this
infrastructure as required, to conduct daily operations. Denison
relies on various IT systems in all areas of its operations,
including financial reporting, contract management, exploration and
development data analysis, human resource management, regulatory
compliance and communications with employees and third
parties.
These IT systems
could be subject to network disruptions caused by a variety of
sources, including computer viruses, security breaches and
cyber-attacks, as well as network and/or hardware disruptions
resulting from incidents such as unexpected interruptions or
failures, natural disasters, fire, power loss, vandalism and theft.
The Company's operations also depend on the timely maintenance,
upgrade and replacement of networks, equipment, IT systems and
software, as well as pre-emptive expenses to mitigate the risks of
failures.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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The ability of
the IT function to support the Company’s business in the
event of any such occurrence and the ability to recover key systems
from unexpected interruptions cannot be fully tested. There is a
risk that, if such an event actually occurs, the Company’s
continuity plans may not be adequate to immediately address all
repercussions of the disaster. In the event of a disaster affecting
a data centre or key office location, key systems may be
unavailable for a number of days, leading to inability to perform
some business processes in a timely manner. As a result, the
failure of Denison’s IT systems or a component thereof could,
depending on the nature of any such failure, adversely impact the
Company's reputation and results of operations.
Although to date
the Company has not experienced any material losses relating to
cyber-attacks or other information security breaches, there can be
no assurance that the Company will not incur such losses in the
future. Unauthorized access to Denison’s IT systems by
employees or third parties could lead to corruption or exposure of
confidential, fiduciary or proprietary information, interruption to
communications or operations or disruption to the Company’s
business activities or its competitive position. Further,
disruption of critical IT services, or breaches of information
security, could have a negative effect on the Company’s
operational performance and its reputation. The Company's risk and
exposure to these matters cannot be fully mitigated because of,
among other things, the evolving nature of these threats. As a
result, cyber security and the continued development and
enhancement of controls, processes and practices designed to
protect systems, computers, software, data and networks from
attack, damage or unauthorized access remain a
priority.
The Company
applies technical and process controls in line with
industry-accepted standards to protect information, assets and
systems; however, these controls may not adequately prevent
cyber-security breaches. There is no assurance that the Company
will not suffer losses associated with cyber-security breaches in
the future, and may be required to expend significant additional
resources to investigate, mitigate and remediate any potential
vulnerabilities. As cyber threats continue to evolve, the Company
may be required to expend additional resources to continue to
modify or enhance protective measures or to investigate and
remediate any security vulnerabilities.
Dependence on Key Personnel and Qualified and Experienced
Employees
Denison’s
success depends on the efforts and abilities of certain senior
officers and key employees. Certain of Denison’s employees
have significant experience in the uranium industry, and the number
of individuals with significant experience in this industry is
small. While Denison does not foresee any reason why such officers
and key employees will not remain with Denison, if for any reason
they do not, Denison could be adversely affected. Denison has not
purchased key man life insurance for any of these individuals.
Denison’s success also depends on the availability of and
competitiveness for qualified and experienced employees to work in
Denison’s operations and Denison’s ability to attract
and retain such employees. In addition, Denison’s ability to
keep essential operating staff in place may also be challenged as a
result of potential COVID-19 outbreaks or quarantines.
Conflicts of Interest
Some of the
directors and officers of Denison are also directors of other
companies that are similarly engaged in the business of acquiring,
exploring and developing natural resource properties. Such
associations may give rise to conflicts of interest from time to
time. In particular, one of the consequences would be that
corporate opportunities presented to a director or officer of
Denison may be offered to another company or companies with which
the director or officer is associated, and may not be presented or
made available to Denison. The directors and officers of Denison
are required by law to act honestly and in good faith with a view
to the best interests of Denison, to disclose any interest which
they may have in any project or opportunity of Denison, and, where
applicable for directors, to abstain from voting on such matter.
Conflicts of interest that arise will be subject to and governed by
the procedures prescribed in the Company’s Code of Ethics and
by the Ontario Business
Corporations Act (‘OBCA’).
Disclosure and Internal Controls
Internal controls
over financial reporting are procedures designed to provide
reasonable assurance that transactions are properly authorized,
assets are safeguarded against unauthorized or improper use, and
transactions are properly recorded and reported. Disclosure
controls and procedures are designed to ensure that information
required to be disclosed by a company in reports filed with
securities regulatory agencies is recorded, processed, summarized
and reported on a timely basis and is accumulated and communicated
to the company’s management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. A control system,
no matter how well designed and operated, can provide only
reasonable, not absolute, assurance with respect to the reliability
of reporting, including financial reporting and financial statement
preparation.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Potential Influence of KEPCO and KHNP
Effective
December 2016, KEPCO indirectly transferred the majority of its
interest in Denison to KHNP Canada. Denison and KHNP Canada
subsequently entered into the KHNP SRA (on substantially similar
terms as the original strategic relationship agreement between
Denison and KEPCO), pursuant to which KHNP Canada is contractually
entitled to Board representation. Provided KHNP Canada holds over
5% of the Shares, it is entitled to nominate one director for
election to the Board at any Shareholder meeting.
KHNP
Canada’s shareholding level gives it a large vote on
decisions to be made by shareholders of Denison, and its right to
nominate a director may give KHNP Canada influence on decisions
made by Denison's Board. Although KHNP Canada’s director
nominee will be subject to duties under the OBCA to act in the best
interests of Denison as a whole, such director nominee is likely to
be an employee of KHNP and he or she may give special attention to
KHNP’s or KEPCO’s interests as indirect Shareholders.
The interests of KHNP and KEPCO, as indirect Shareholders, may not
always be consistent with the interests of other
Shareholders.
The KHNP SRA also
includes provisions granting KHNP Canada a right of first offer for
certain asset sales and the right to be approached to participate
in certain potential acquisitions. The right of first offer and
participation right of KHNP Canada may negatively affect Denison's
ability or willingness to entertain certain business opportunities,
or the attractiveness of Denison as a potential party for certain
business transactions. KEPCO’s large indirect shareholding
block may also make Denison less attractive to third parties
considering an acquisition of Denison if those third parties are
not able to negotiate terms with KEPCO or KHNP Canada to support
such an acquisition.
United States investors may not be able to obtain enforcement of
civil liabilities against the Company
The
enforcement by investors of civil liabilities under the United
States federal or state securities laws may be affected adversely
by the fact that the Company is governed by the OBCA, that the
majority of the Company’s officers and directors are
residents of Canada, and that all, or a substantial portion, of
their assets and the Company’s assets are located outside the
United States. It may not be possible for investors to effect
service of process within the United States on certain of its
directors and officers or enforce judgments obtained in the United
States courts against the Company or certain of the Company’s
directors and officers based upon the civil liability provisions of
United States federal securities laws or the securities laws of any
state of the United States.
There is some
doubt as to whether a judgment of a United States court based
solely upon the civil liability provisions of United States federal
or state securities laws would be enforceable in Canada against the
Company or its directors and officers. There is also doubt as to
whether an original action could be brought in Canada against the
Company or its directors and officers to enforce liabilities based
solely upon United States federal or state securities
laws.
If the Company is characterized as a passive foreign investment
company, U.S. holders may be subject to adverse U.S. federal income
tax consequences
U.S. investors
should be aware that they could be subject to certain adverse U.S.
federal income tax consequences in the event that the Company is
classified as a “passive foreign investment company”
(“PFIC”) for U.S. federal income tax purposes. The
determination of whether the Company is a PFIC for a taxable year
depends, in part, on the application of complex U.S. federal income
tax rules, which are subject to differing interpretations, and the
determination will depend on the composition of the Company’s
income, expenses and assets from time to time and the nature of the
activities performed by the Company’s officers and employees.
The Company may be a PFIC in one or more prior tax years, in the
current tax year and in subsequent tax years. Prospective investors
should carefully read the discussion below under the heading
“Material United States Federal Income Tax Considerations for
U.S. Holders” and the tax discussion in any applicable
prospectus supplement for more information and consult their own
tax advisors regarding the likelihood and consequences of the
Company being treated as a PFIC for U.S. federal income tax
purposes, including the advisability of making certain elections
that may mitigate certain possible adverse U.S. federal income tax
consequences that may result in an inclusion in gross income
without receipt of such income.
As a foreign
private issuer, the Company is subject to different U.S. securities
laws and rules than a U.S. domestic issuer, which may limit the
information publicly available to U.S. investors
The Company is a
foreign private issuer under applicable U.S. federal securities
laws and, therefore, is not required to comply with all of the
periodic disclosure and current reporting requirements of the U.S.
Exchange Act and related rules and regulations. As a result, the
Company does not file the same reports that a U.S. domestic issuer
would file with the SEC, although it will be required to file with
or furnish to the SEC the continuous disclosure documents that the
Company is required to file in Canada under Canadian securities
laws. In addition, the Company’s officers, directors and
principal shareholders are exempt from the reporting and
“short swing” profit recovery provisions of Section 16
of the U.S. Exchange Act. Therefore, the Company’s
securityholders may not know on as timely a basis when its
officers, directors and principal shareholders purchase or sell
securities of the Company as the reporting periods under the
corresponding Canadian insider reporting requirements are longer.
In addition, as a foreign private issuer, the Company is exempt
from the proxy rules under the U.S. Exchange Act.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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The Company could lose its foreign private issuer status in the
future, which could result in significant additional costs and
expenses to the Company
In order to
maintain its current status as a foreign private issuer, 50% or
more of the Company’s Common Shares must be directly or
indirectly owned of record by non-residents of the United States
unless the Company also satisfies one of the additional
requirements necessary to preserve this status. The Company may in
the future lose its foreign private issuer status if a majority of
the Common Shares are owned of record in the United States and the
Company fails to meet the additional requirements necessary to
avoid loss of foreign private issuer status. The regulatory and
compliance costs to the Company under U.S. federal securities laws
as a U.S. domestic issuer may be significantly more than the costs
the Company incurs as a Canadian foreign private issuer eligible to
use the multijurisdictional disclosure system. If the Company is
not a foreign private issuer, it would not be eligible to use the
multijurisdictional disclosure system or other foreign issuer forms
and would be required to file periodic and current reports and
registration statements on U.S. domestic issuer forms with the SEC,
which are more detailed and extensive than the forms available to a
foreign private issuer.
QUALIFIED PERSON AND TECHNICAL INFORMATION
David Bronkhorst,
P.Eng., Denison’s Vice President Operations, who is a
"Qualified Person" within the meaning of this term in NI 43-101,
has prepared and/or reviewed and confirmed the scientific and
technical disclosure pertaining to the Company’s evaluation
programs.
Andy Yackulic,
P.Geo., Denison’s Director Exploration, who is a "Qualified
Person" within the meaning of this term in NI 43-101, has prepared
and/or reviewed and confirmed the scientific and technical
disclosure pertaining to the Company’s exploration
programs.
For more
information regarding each of Denison’s material projects
discussed herein, you are encouraged to refer to the applicable
technical reports available on the Company’s website and
under the Company’s profile on SEDAR (www.sedar.com)
and EDGAR (www.sec.gov/edgar.shtml):
●
For the Wheeler River
project, the “Prefeasibility Study Report for the Wheeler
River Uranium Project Saskatchewan, Canada” dated October 30,
2018;
●
For the Waterbury Lake
project, “Preliminary Economic Assessment for the Tthe
Heldeth Túé (J Zone) Deposit, Waterbury Lake Property,
Northern Saskatchewan, Canada” with an effective date of
October 30, 2020;
●
For the Midwest project,
“Technical Report with an Updated Mineral Resource Estimate
for the Midwest Property, Northern Saskatchewan, Canada”
dated March 26, 2018; and
●
For the McClean Lake project,
(A) the “Technical Report on the Denison Mines Inc. Uranium
Properties, Saskatchewan, Canada” dated November 21, 2005, as
revised February 16, 2006, (B) the “Technical Report on the
Sue D Uranium Deposit Mineral Resource Estimate, Saskatchewan,
Canada” dated March 31, 2006, and (C) the "Technical Report
on the Mineral Resource Estimate for the McClean North Uranium
Deposits, Saskatchewan" dated January 31, 2007.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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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 expectations described in the 2021 Outlook,
including operating budget and capital expenditure programs,
estimated exploration and development expenditures and reclamation
costs and Denison's share of same; exploration, development and
expansion plans and objectives, including the results of the PFS,
the scoping study and statements regarding anticipated evaluation
plans, budgets and expenditures, including statements regarding the
completion of testing, a future FS, EA process and EIS;
expectations regarding Denison’s joint venture ownership
interests and the continuity of its agreements with its partners;
the benefits to be derived from corporate transactions;
expectations regarding adding to its mineral reserves and resources
through acquisitions or exploration; expectations regarding the
toll milling of Cigar Lake ores and its related contractual
arrangements with APG; anticipated programs for SABRE test mining
and processing and related activities; expectations regarding
revenues and expenditures from operations at the Closed Mines
group; expectations regarding revenues from the UPC management
contract; and statements and outlook regarding the uranium industry
and other industry participants described herein. 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. For example, the
results of the Denison’s studies, including the PFS,
trade-off study, and field work, may not be maintained after
further testing or be representative of actual mining plans for the
Phoenix deposit after further design and studies are completed. In
addition, Denison may decide or otherwise be required to
discontinue testing, evaluation and development work at Wheeler
River or other projects or its exploration plans if it is unable to
maintain or otherwise secure the necessary resources (such as
testing facilities, capital funding, regulatory approvals, etc.) or
operations are otherwise affected by COVID-19 and its potentially
far-reaching impacts. 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 under the heading
‘Risk Factors’, above. 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.
This MD&A
also contains information relating to the uranium market and other
industry participants which have been derived from third-party
publications and reports which Denison believes are reliable but
have not been independently verified by the Company.
Cautionary Note to United States Investors
Concerning Estimates of Mineral Resources and Mineral
Reserves: This MD&A may use terms such as "measured",
"indicated" and/or "inferred" mineral resources and "proven" or
"probable" mineral reserves, which are terms defined with reference
to the guidelines set out in the Canadian Institute of Mining,
Metallurgy and Petroleum ("CIM") CIM Definition Standards on
Mineral Resources and Mineral Reserves ("CIM Standards"). The
Company's descriptions of its projects using CIM Standards may not
be comparable to similar information made public by U.S. companies
subject to the reporting and disclosure requirements under the
United States federal securities laws and the rules and regulations
thereunder. In addition, 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 or that all
or any part of an inferred mineral resource exists, or is
economically or legally mineable.