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.
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)
|
||
|
|
At December
31
2020
|
At December
31
2019
|
|
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
|
The accompanying
notes are an integral part of the consolidated financial
statements
|
Consolidated
Statements of Changes in Equity
|
||
|
|
Year Ended
December 31
|
|
|
(Expressed in thousands of
CAD dollars)
|
2020
|
2019
|
|
|
|
|
|
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
The accompanying
notes are an integral part of the 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)
|
|
1.
NATURE OF
OPERATIONS
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:
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.
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.
D.
Financial
instruments
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.
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.
F.
Inventories
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.
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.
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”.
I.
Employee
benefits
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.
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.
K.
Provisions
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.
N.
Revenue
recognition
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.
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.
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.
The cash and cash
equivalent balance consists of:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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.
The trade and
other receivables balance consists of:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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.
The investments
balance consists of:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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:
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)
|
Number of Common
Shares
|
|
|
|
|
|
|
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
|
-
|
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:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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).
10.
PROPERTY,
PLANT AND EQUIPMENT
The property,
plant and equipment (“PP&E”) continuity summary is
as follows:
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.
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.
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:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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)
|
2020
|
2019
|
|
|
|
|
|
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.
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:
The
post-employment benefits continuity summary is as
follows:
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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
|
13. RECLAMATION
OBLIGATIONS
The reclamation
obligations balance consists of:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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:
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.
14. OTHER
LIABILITIES
The other
liabilities balance consists of:
|
|
At December
31
|
At December
31
|
|
(in thousands)
|
2020
|
2019
|
|
|
|
|
|
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:
|
|
Lease
|
Loan
|
Total
Debt
|
|
(in thousands)
|
Liabilitites
|
Liabilities
|
Obligations
|
|
|
|
|
|
|
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:
|
|
Lease
|
Loan
|
Total
Debt
|
|
(in thousands)
|
Liabilitites
|
Liabilities
|
Obligations
|
|
|
|
|
|
|
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.
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:
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:
(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.
The deferred
income tax assets (liabilities) balance reported on the balance
sheet is comprised of the temporary differences as presented
below:
|
|
At December
31
|
At December
31
|
|
(in
thousands)
|
2020
|
2019
|
|
|
|
|
|
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:
Management
believes that it is not probable that sufficient taxable profit
will be available in future years to allow the benefit of the
following deferred tax assets to be utilized:
|
|
At December
31
|
At December
31
|
|
(in
thousands)
|
2020
|
2019
|
|
|
|
|
|
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
|
The expiry dates
of the Company’s Canadian tax losses and credits is as
follows: