Denison Mines Corp. ("Denison" or the "Company") (TSX: DML)(NYSE-A:
DNN) today reported its financial results for the three months and
nine months ended September 30, 2008. All amounts in this release
are in U.S. dollars unless otherwise indicated. For a more detailed
discussion of the financial results, see management's discussion
and analysis ("MD&A") following this release.
Consolidated Results
Consolidated net income was $332,000 or $0.00 per share for the
three months ended September 30, 2008 compared with a consolidated
net loss of $11,721,000 or $0.06 per share for the same period in
2007. For the nine months ended September 30, 2008, consolidated
net loss was $23,886,000 ($0.13 per share) compared with
consolidated net income of $23,702,000 ($0.13 per share) for the
same period in 2007.
Revenue was $36,483,000 for the three months ended September 30,
2008 compared with $9,411,000 for the three months ended September
30, 2007. Revenue was $86,377,000 for the nine months ended
September 30, 2008 compared to $39,939,000 for the nine months
ended September 30, 2007, an increase of 116%.
Net cash from (used in) operations was ($11,107,000) for the
three months ended September 30, 2008, compared with net cash from
(used in) operations of ($9,139,000) for the three months ended
September 30, 2007. For the nine months ended September 30, 2008
net cash from (used in) operations was ($9,437,000) compared with
($14,044,000) for the same period in 2007.
The Company expenses exploration expenditures on mineral
properties not sufficiently advanced to identify their development
potential. Exploration expenditures expensed totalled $7,682,000
for the three months ended and $18,034,000 for the nine months
ended September 30, 2008 compared to $8,385,000 for the three
months and $16,914,000 for the nine months ended September 30,
2007.
Significant events in the third quarter include:
- Uranium sales revenue increased by 116% over sales in the nine
month period in 2007. Denison sold 370,000 pounds U3O8 during the
quarter from U.S. production at an average price of $66.12 per
pound and 147,000 pounds U3O8 from its Canadian production under
the existing long-term contracts at an average price of $61.35 per
pound.
- Spot prices for U3O8 decreased from $59.00 per pound at June
30, 2008 to $53.00 per pound at September 30, 2008 and is currently
$48.00 per pound as quoted by Ux Consulting. The long-term price
for U3O8 dropped from $80.00 per pound at June 30, 2008 to $75.00
per pound at September 30, 2008 and is currently $70.00 per pound
as quoted by Ux Consulting.
- Denison Environmental Services ("DES"), a division of Denison
Mines Inc., a subsidiary of the Company, was awarded a contract for
care and maintenance at the Faro Mine Complex in the Yukon. The
contract runs for three years at $7.2 million per annum.
- Exploration drilling at the Company's Mutanga uranium project
in Zambia discovered three new zones of mineralization.
- Exploration drilling at the Wheeler River project in which
Denison has a 60% interest, confirmed a new unconformity hosted
mineralized zone with 600 metres of untested strike length.
- Production during the quarter at the Company's White Mesa mill
in Utah totalled 286,000 lbs. U3O8 and 250,000 lbs V2O5. The
Company's share of production at 22.5% owned McClean Lake totalled
184,000 pounds U3O8.
- Denison signed a second long-term contract for the supply of
uranium from the White Mesa mill. The contract is for 20% of the
production from the White Mesa mill during the years 2012 - 2017
inclusive, but not less than 200,000 pounds per year. Pricing under
this contract is 95% of the long-term price at the time of delivery
with an escalated floor price of $50.00 per pound.
- The Company obtained the operation permit for its tailings
cell 4A at its White Mesa mill in Utah.
Revenue
Uranium sales revenue for the third quarter was $34,600,000.
Sales from U.S. production were 370,000 pounds U3O8 at an average
price of $66.12 per pound. Sales of Canadian production were
147,000 pounds U3O8 at an average price of $61.35 per pound.
Revenue also includes the amortization of the fair value increment
on sales contracts from the acquisition of Denison Mines Inc. in
the amount of $947,000 in the quarter. Uranium sales revenue in the
2007 period totaled $7,395,000 from the net sale of 85,000 pounds
U3O8 from Canadian production at an average sales price of $85.41
per pound.
Denison currently markets its uranium from the McClean Lake
joint venture jointly with AREVA Resources Canada Inc. ("ARC").
Denison's share of current contracted sales volumes jointly
marketed with ARC is set out in the table below:
Contracted Canadian Sales Volumes
---------------------------------
(pounds U3O8 x 1000)
(in thousands) 2008 2009 2010 Pricing
---- ---- ---- ------------------
Market Related 588 392 49 80% to 85% of Spot
Legacy Base Escalated 95 0 0 $20.00 to $26.00
Legacy Market Related 60 0 0 96% of Spot
Agreements with AREVA call for production to be allocated first
to the market related contracts with any surplus to be apportioned
evenly over the legacy contracts. The legacy base-escalated
contracts have pricing formulas that result in sales prices well
below current market prices.
The joint marketing of Canadian uranium production will cease at
the end of 2008 except for the market related category above.
Future long-term sales agreements for the Company's uranium
inventory and production are expected to be primarily under
market-related contracts.
In addition to the contracts noted above, the Company currently
has two other long-term contracts in place. One is for the sale of
17% of the White Mesa mill production commencing in 2008 up to 6.5
million pounds with a minimum of 250,000 pounds in 2008 and 500,000
pounds in 2009 increasing to a minimum of 1,000,000 pounds by 2011.
The sales price is 95% of the published long-term price for the
month prior to delivery with a floor price of $45.00. The second
contract is for 20% of the production from the White Mesa mill
during the years 2012 to 2017 inclusive, but not less than 200,000
pounds per year. Pricing under this contract is 95% of the
long-term price at the time of delivery with an escalated floor
price of $50.00 per pound.
Revenue from the environmental services division was $1,434,000
for the three months ended September 30, 2008 compared to
$1,443,000 in the same period in 2007. Revenue from the management
contract with Uranium Participation Corporation was $425,000 for
the three months ended September 30, 2008 compared to $505,000 for
the third quarter of 2007.
Uranium Production
Total uranium production for the Company from its Canadian and
U.S. operations was 470,000 pounds for the three months ended
September 30, 2008 and 977,000 pounds for the nine months ended
September 30, 2008. The McClean Lake joint venture produced 818,000
pounds U3O8 for the three months ended September 30, 2008 and
2,566,000 pounds U3O8 for the nine months ended September 30, 2008
compared to production of 385,000 pounds and 1,169,000 pounds
during the same periods in 2007. Denison's 22.5% share of the 2008
production totaled 184,000 pounds during the three months and
577,000 pounds during the nine months ended September 30, 2008.
Production costs from Canadian operations for the quarter were
CDN$58.92 per pound U3O8 including CDN$34.99 per pound U3O8 from
amortization, depletion and depreciation costs. For the nine months
ended September 30, 2008, production costs were CDN$55.94 per pound
U3O8 including CDN$33.89 per pound U3O8 for amortization, depletion
and depreciation costs.
Inventory from Canadian production was 46,000 pounds U3O8 at
September 30, 2008.
Production at the White Mesa mill was 286,000 pounds U3O8 for
the three months ended September 30, 2008 and 400,000 pounds U3O8
for the nine months ended September 30, 2008 compared to 16,000
pounds and 153,000 pounds U3O8 for the same periods in 2007.
Processing of conventional ore commenced on April 28, 2008 and to
September 30, 2008 production from conventional ore was 306,000
pounds U3O8. The Company also commenced producing vanadium during
the third quarter and produced 250,000 pounds V2O5 to September 30,
2008. Production at the White Mesa mill continues to increase with
over 166,000 pounds U3O8 and 294,000 pounds V2O5 produced in
October 2008.
For the nine months ended September 30, 2008, production costs
for processing conventional ore at the White Mesa mill totaled
$61.93 per pound U3O8 and vanadium equivalent including $24.38 per
pound for amortization, depletion and depreciation.
Inventory from US production was 76,500 pounds U3O8 and 250,000
pounds V2O5 at September 30, 2008.
Mineral Property Exploration
Denison is engaged in uranium exploration, as both operator and
non-operator of joint ventures and as operator of its own
properties in Canada, the U.S., Mongolia and Zambia. For the three
months ended September 30, 2008 exploration expenditures totaled
$7,682,000 compared to $8,385,000 for the three months ended
September 30, 2007. For the nine months ended September 30, 2008,
exploration expenditures totaled $18,034,000 compared with
$16,914,000 for the nine months ended September 30, 2007.
In the Athabasca Basin region of Saskatchewan, Denison is
engaged in uranium exploration on advanced projects as part of the
ARC operated McClean and Midwest joint ventures and is
participating in a total of 33 other exploration projects
concentrated in the prospective eastern margin of the Athabasca
Basin. Denison's share of exploration spending on its Canadian
properties totaled $3,042,000 of which $2,855,000 was expensed in
the statement of operations for the three months ended September
30, 2008. Exploration spending totaled $5,612,000 of which
$5,547,000 was expensed in the statement of operations for the
three months ended September 30, 2007. For the nine months ended
September 30, 2008, Denison's share of exploration spending on its
Canadian properties totaled $12,210,000 of which $11,329,000 was
expensed compared with spending of $14,045,000 of which $13,441,000
was expensed in the nine months ended September 30, 2007.
Exploration expenditures of $2,099,000 for the three months
ended September 30, 2008 ($2,716,000 for the three months ended
September 30, 2007) and of $3,520,000 for the nine months ended
September 30, 2008 ($3,177,000 for the nine month period in 2007)
were spent in Mongolia on the Company's joint venture and 100%
owned properties. The Company has a 70% interest in the Gurvan
Saihan Joint Venture ("GSJV") in Mongolia. The other parties to the
joint venture are the Mongolian government as to 15% and
Geologorazvedka, a Russian government entity, as to 15%. Additional
expenditures for development of the GSJV's Hairhan uranium deposits
have also been incurred. Development work includes extensive
resource delineation drilling, hydrogeological drilling, plant
design and environmental studies.
In Zambia, the Company commenced exploration activities during
the quarter, including an airborne geophysical survey, linecutting
and drilling. Exploration expenditures during the quarter totaled
$2,465,000. Additional expenditures for development of the Mutanga
project continued. This work included development and
hydrogeological drilling, metallurgical test work, environmental
studies and engineering.
General and Administrative
General and administrative expenses were $4,322,000 for the
three months ended September 30, 2008 compared with $3,138,000 for
the three months ended September 30, 2007. The increase was
primarily the result of the increase in the Company's operations,
the acquisition and implementation of new information and financial
systems, an increase in public company expenses due to additional
compliance costs and an increase in non-cash stock compensation
costs resulting from stock options granted in 2008. General and
administrative expenses consist primarily of payroll and related
expenses for personnel, contract and professional services and
other overhead expenditures.
Other Income and Expenses
Other income (expense) totaled $8,451,000 for the three months
ended September 30, 2008 compared with ($893,000) for the three
months ended September 30, 2007. For the nine months ended
September 30, 2008, other income (expense) totaled ($65,000)
compared to $37,343,000 for the same period in 2007. During the
third quarter, this consists primarily of interest income, interest
expense, and foreign exchange gains. Foreign exchange gains totaled
$9,197,000 for the three months and $232,000 for the nine months
ended September 30, 2008 arising from the translation of the
Zambian kwacha into the U.S. dollar. In 2007, other income
(expense) included a gain on the sale of portfolio investments of
$1,108,000 and $39,751,000 for the three months and nine month
periods. Other income (expense) also included interest paid on
company indebtedness of $902,000 for the three months and
$1,422,000 for the nine months ended September 30, 2008.
Outlook
Mining and Production
Canada
Mining of the Sue B deposit, which contains approximately 1.4
million pounds U3O8, is underway and is expected to be completed by
year end. Milling of the stockpiled Sue E, Sue B and Sue A ore is
ongoing and U3O8 production at McClean Lake in 2008, which will be
primarily ore from Sue E, is expected to be 3.2 million pounds of
which Denison's share is 720,000 pounds. Stripping and mining of
the Caribou deposit is expected to commence in March 2009.
Denison's share of production in 2009 is expected to be 750,000
pounds U3O8.
United States
Five mines are operating on the Colorado Plateau with production
from the Sunday, Pandora, Topaz, West Sunday and Rim mines running
at about 400 tons per day. At the Tony M mine within the Henry
Mountains Complex, located in Utah, production is currently
approximately 340 tons per day. In addition to the mined ore,
historic stockpile ore from Tony M is being hauled to the mill at a
rate of approximately 470 tons per day. There is an estimated
85,000 tons of this stockpile material remaining at the mine site.
Production from these mines is being hauled to Denison's White Mesa
mill. At September 30, 2008, a total of 289,000 tons had been
shipped to the mill of which 140,500 tons have been fed to the
mill. Mine development work has begun at the Beaver mine located on
the Colorado Plateau. Ore production from this mine is anticipated
to begin in December 2008 and will ramp up to 150 tons per day by
second quarter 2009. At the Company's Arizona 1 mine on the Arizona
Strip, located in northeastern Arizona, the shaft rehabilitation
and ventilation raises are complete. The air quality permitting
process is underway but the Company is unable to determine the
length of time required to receive the permit.
Processing of conventional ore at the mill began on April 28,
2008. The mill processed uranium-only ore to June 30, 2008. On July
1, 2008, processing of the uranium/vanadium ores from the Company's
Colorado Plateau mines commenced. Some Tony M ore was processed in
August as the vanadium circuit worked through some commissioning
issues. The mill is anticipating processing Colorado Plateau ore
for the remainder of the year. The relining of tailings cell 4A is
complete and approval of the operating permit has been
received.
The Company expects to produce 1.0 million pounds U3O8 and 1.5
to 2.0 million pounds V2O5 during 2008 at the White Mesa mill. In
2009, production at the White Mesa mill is expected to be 1.4
million to 1.8 million pounds U3O8 and 2.6 million pounds to 3.2
million pounds V2O5.
Sales
The Company expects to sell 1.6 to 1.7 million pounds of U3O8 in
2008 including 0.9 to 1.0 million pounds from U.S. production. It
also anticipates selling 1.0 to 1.3 million pounds of vanadium.
Vanadium prices are quite volatile but have recently been quoted at
$10 to $11 per pound V2O5.
Exploration(1)
Athabasca Basin
In the Athabasca Basin, Denison is participating in a total of
35 exploration projects, located in the eastern part of the Basin
and within trucking distance of all the three operating mills in
the area. Denison and its joint venture partners carried out an
extensive exploration program during this quarter with drilling
activity on 8 of Denison's 35 projects.
On the 60% owned Wheeler River property, a new zone of
unconformity hosted uranium mineralization at a depth of less than
400 metres was discovered and reported in the second quarter.
Preliminary results were reported based on eU3O8 grades.
Confirmatory split core assay results have now been received from
these holes, and have substantially upgraded the intersections.
Drill hole WR-249 graded 1.72% U3O8(2) over 1.35 metres(3) as
compared to the previously reported grade of 0.263% eU3O8 over 2.0
metres and drill hole WR-251 graded 0.775% U3O8 over 2.25 metres as
compared to the previously reported grade of 0.248% eU3O8 over 2.8
metres. In addition, late in the summer, WR-253 was spotted 15
metres to the south-east of WR-251, and intersected the target
horizon at the unconformity and returned the highest results to
date of 1.40% U3O8 over 4.0 metres, in the sandstone, and 1.75%
U3O8 over 0.5 metres, in the basement.
The new Zone R has only been tested on two sections with 600
metres of untested strike length between the two sections. A drill
hole 30 metres to the northeast of WR-253 overshot the zone, and
WR-255, the last hole of the season located 30 metres southwest of
WR-253, was lost in a void in an intensely altered zone above the
unconformity. The geophysical signature extends a further 300
metres to the southwest and 150 metres to the northeast of the
current sections, indicating a potential one-kilometre long zone.
Infill and stepout drilling is scheduled for 2009.
Denison's exploration spending in 2008 in the Athabasca Basin is
expected to total $13,300,000.
(1) The technical information contained in this MD&A
relating to the above-described exploration activities is reported
and verified by William C. Kerr, Denison's Vice President,
Exploration, who is a "qualified person" as defined in National
Instrument 43-101.
(2) Values reported herein are based on a 0.05% U3O8 cutoff.
(3) All intersections and geological interpretations are based
on diamond drill core only and mineralized intervals may not
represent true thickness. For a description of the quality
assurance program and quality control measure applied by Denison
during the above described work, please see Denison's Annual
Information Form filed on March 28, 2008 under the Company's
profile on the SEDAR website at www.sedar.com.
Southwest United States
Drilling began early in the quarter on the Monogram Mesa
project. While interesting and low level mineralization was
identified in several widely spaced holes, no significant
mineralization was noted. A drill program near the Company's
Pandora mine is scheduled to begin in mid-November.
Mongolia
Work in Mongolia was completed late in the quarter and consisted
of a total of over 72,000 metres of drilling in 474 holes on five
projects. Three new discoveries were made this season: at Hairhan
along trend of the known mineralization; at Haraat parallel to
known mineralization; and, a new deep zone at Ulziit. All these new
discoveries will require additional drilling.
On the development side, hydrogeological work continued to
mid-September in support of baseline and monitoring test wells at
Hairhan. A number of environmental radiological programs were
initiated and will continue in support of advancement to commercial
ISR production at Hairhan.
An updated 43-101 compliant resource estimate for the Hairhan
deposit which will incorporate the 2007 and 2008 drilling results
will be completed in the first quarter of 2009. A revised 43-101
compliant resource estimate on the Haraat deposit is scheduled to
be completed in the second quarter of 2009.
Zambia
Site activities during this quarter consisted of completion of a
major airborne geophysical survey, detailed linecutting and
exploration drilling on selected areas outside of the two proposed
pit sites, hydrogeological drilling to define baseline
hydrogeological groundwater parameters and environmental baseline
studies. A total of three drill rigs continued work during the
quarter and completed over 55,000 metres of drilling year to date,
composed of 41,742 metres in support of development drilling,
10,654 metres committed to exploration drilling and 2,087 metres
devoted to hydrogeological drilling.
As announced on September 18, 2008, three areas were classified
as new uraniferous discoveries based on work during this quarter
and require further confirmatory and infill drilling in subsequent
programs. All the new discoveries are located within five
kilometres of the main Mutanga deposit which is scheduled to be the
first deposit mined.
In addition to the site activities, other project activities
include: a 43-101 report on the Mutanga and Dibwe deposits, which
is scheduled to be completed in the fourth quarter; metallurgical
test work, including a pilot plant test and heap leach test work;
infrastructure studies; development of a relocation plan; and,
engineering in order to complete a detailed feasibility study by
the end of the first quarter of 2009.
Liquidity
The Company had cash and cash equivalents at September 30, 2008
of $15,879,000 and portfolio investments with a market value of
$21,039,000. The company has in place a $125,000,000 revolving
credit facility with a term of three years. The facility includes a
covenant which would reduce the credit facility to $80,000,000 by
June 30, 2009 if the Company does not meet a production level of
1,700,000 pounds for 2008. An agreement has been reached with the
bank to amend the production covenant to include vanadium
production equivalent to uranium at a five to one ratio. Bank
indebtedness under the facility at September 30, 2008 was
$101,332,000.
Recent turmoil in world financial markets has severely curtailed
access to debt and other capital. The Company's spending plans and
budgets for 2009 are currently being completed and are being
tailored to fit within existing capital resources. This will result
in decreased spending in all our exploration and development
projects in 2009.
Conference Call
Denison is hosting a conference call on November 13, 2008
starting at 10:00 a.m. (Eastern Standard Time) to discuss the third
quarter 2008 results. The webcast will be available live through a
link on Denison's website www.denisonmines.com and by telephone at
416-641-6139. A recorded version of the conference call will be
available by calling 416-695-5800 (password: 3274398) approximately
two hours after the conclusion of the call. The presentation will
also be available at www.denisonmines.com.
Additional Information
Additional information on Denison is available on SEDAR at
www.sedar.com and on the Company's website at
www.denisonmines.com.
About Denison
Denison Mines Corp. is the premier intermediate uranium producer
in North America, with mining assets in the Athabasca Basin Region
of Saskatchewan, Canada and the southwest United States including
Colorado, Utah, and Arizona. Further, the Company has ownership
interests in two of the four conventional uranium mills operating
in North America today. The Company also has a strong exploration
and development portfolio with large land positions in the United
States, Canada, Zambia and Mongolia.
Cautionary Statements
This press release contains statements which are not current
statements or historical facts. They are "forward-looking
information" as defined under Canadian securities laws and
"forward-looking statements", within the meaning of the United
States Private Securities Litigation Reform Act of 1995, concerning
the business, operations and financial performance and condition of
Denison which may be material and that involve risks, uncertainties
and other factors that could cause actual results to differ
materially from those expressed or implied by them.
The material risk factors that could cause actual results to
differ materially from the forward-looking information and
statements contained in this press release and the material risk
factors or assumptions that were used to develop them include, but
are not limited to, statements with respect to estimated production
sales volumes, and the expected effects of possible corporate
transactions and the development potential of Denison's properties;
the future price of uranium, vanadium, nickel and cobalt; the
estimation of mineral reserves and resources; the realization of
mineral reserve estimates; the timing and amount of estimated
future production; costs of production; capital expenditures;
success of exploration activities; permitting timelines and
permitting, mining or processing issues; currency exchange rate
fluctuations; government regulation of mining operations;
environmental risks; unanticipated reclamation expenses; title
disputes or claims; and limitations on insurance coverage.
Generally, these forward-looking-information and statements can be
identified by the use of forward-looking terminology such as
"plans," "expects" or "does not expect," "is expected," "budget,"
"scheduled," "estimates," forecasts," "intends," "anticipates" or
"does not anticipate," or "believes," or variations of such words
and phrases or state that certain actions, events or results "may,"
"could," "would," "might" or "will be taken," "occur" or "be
achieved."
Forward-looking information and statements are based on the
opinions and estimates of management as of the date such statements
are made. They are subject to known and unknown risks,
uncertainties and other factors that may cause the actual results,
level of activity, performance or achievements of Denison to be
materially different from those expressed or implied by such
forward-looking-information and statements, including but not
limited to risks related to: unexpected events during construction,
expansion and start-up; variations in ore grade; amount of material
mined or milled; delay or failure to receive board or government
approvals; timing and availability of external financing on
acceptable terms; risks related to international operations; actual
results of current exploration activities; actual results of
current reclamation activities; conclusions of economic
evaluations; changes in project parameters as plans continue to be
refined; future prices of uranium, vanadium, nickel and cobalt;
possible variations in ore reserves, grade or recovery rates;
unexpected or challenging geological, hydrogeological or mining
conditions which deviate significantly from our assumptions
regarding those conditions; political risks arising from operating
in certain countries, including the risks of nationalization,
terrorism and sabotage; the risk of adverse changes in government
legislation, regulations and policies; the risk of natural
phenomena including inclement weather conditions, fire, flood,
underground floods, earthquakes, pitwall failure and cave-ins;
failure of plant, equipment or processes to operate as anticipated;
accidents, labour disputes and other risks of the mining industry;
delays in the completion of development or construction activities,
as well as those factors discussed in or referred to under the
heading "Risk Factors" in Denison's Annual Information Form dated
March 28, 2008 available at www.sedar.com and its Form 40-F
available at www.sec.gov. Although management of Denison has
attempted to identify material factors that could cause actual
results to differ materially from those contained in
forward-looking-information and statements, which only apply as of
the date hereof and should not be relied upon as representing
Denison's views as of any subsequent date, there may be other
factors that cause results not to be as anticipated, estimated or
intended.
There can be no assurance that such statements will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on
forward-looking-information and statements. Denison does not
undertake to update any forward-looking-information and statements
that are included or incorporated by reference herein, except in
accordance with applicable securities laws. Mineral resources,
which are not mineral reserves, do not have demonstrated economic
viability. Readers should refer to the Annual Information Form and
the Form 40-F of the Company for the year ended December 31, 2007
and other continuous disclosure documents filed since December 31,
2007 available at www.sedar.com for further information relating to
their mineral resources and mineral reserves.
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DENISON MINES CORP
Management's Discussion and Analysis
Nine Months Ended September 30, 2008
(Expressed in U.S. Dollars, Unless Otherwise Noted)
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INTRODUCTION
This Management's Discussion and Analysis ("MD&A") of
Denison Mines Corp. and its subsidiary companies and joint ventures
(collectively, "Denison" or the "Company") provides a detailed
analysis of the Company's business and compares its financial
results with those of the comparable period in the previous year.
This MD&A is dated as of November 12, 2008 and should be read
in conjunction with the Company's unaudited consolidated financial
statements and related notes for the nine months ended September
30, 2008 and the Company's audited consolidated financial
statements and related notes for the year ended December 31, 2007.
The financial statements are prepared in accordance with generally
accepted accounting principles in Canada. All dollar amounts are
expressed in U.S. dollars, unless otherwise noted.
Other continuous disclosure documents, including the Company's
press releases, quarterly and annual reports, Annual Information
Form and Form 40-F are available through its filings with the
securities regulatory authorities in Canada at www.sedar.com and
the United States at sec.gov/edgar.shtml.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains statements which are not current
statements or historical facts. They are "forward-looking
information" as defined under Canadian securities laws and
"forward-looking statements", within the meaning of the United
States Private Securities Litigation Reform Act of 1995, concerning
the business, operations and financial performance and condition of
Denison which may be material and that involve risks, uncertainties
and other factors that could cause actual results to differ
materially from those expressed or implied by them.
The material risk factors that could cause actual results to
differ materially from the forward-looking information and
statements contained in this MD&A and the material risk factors
or assumptions that were used to develop them include, but are not
limited to, statements with respect to estimated production sales
volumes, and the expected effects of possible corporate
transactions and the development potential of Denison's properties;
the future price of uranium, vanadium, nickel and cobalt; the
estimation of mineral reserves and resources; the realization of
mineral reserve estimates; the timing and amount of estimated
future production; costs of production; capital expenditures;
success of exploration activities; permitting timelines and
permitting, mining or processing issues; currency exchange rate
fluctuations; government regulation of mining operations;
environmental risks; unanticipated reclamation expenses; title
disputes or claims; and limitations on insurance coverage.
Generally, these forward-looking-information and statements can be
identified by the use of forward-looking terminology such as
"plans," "expects" or "does not expect," "is expected," "budget,"
"scheduled," "estimates," forecasts," "intends," "anticipates" or
"does not anticipate," or "believes," or variations of such words
and phrases or state that certain actions, events or results "may,"
"could," "would," "might" or "will be taken," "occur" or "be
achieved."
Forward-looking information and statements are based on the
opinions and estimates of management as of the date such statements
are made. They are subject to known and unknown risks,
uncertainties and other factors that may cause the actual results,
level of activity, performance or achievements of Denison to be
materially different from those expressed or implied by such
forward-looking-information and statements, including but not
limited to risks related to: unexpected events during construction,
expansion and start-up; variations in ore grade; amount of material
mined or milled; delay or failure to receive board or government
approvals; timing and availability of external financing on
acceptable terms; risks related to international operations; actual
results of current exploration activities; actual results of
current reclamation activities; conclusions of economic
evaluations; changes in project parameters as plans continue to be
refined; future prices of uranium, vanadium, nickel and cobalt;
possible variations in ore reserves, grade or recovery rates;
unexpected or challenging geological, hydrogeological or mining
conditions which deviate significantly from our assumptions
regarding those conditions; political risks arising from operating
in certain countries, including the risks of nationalization,
terrorism and sabotage; the risk of adverse changes in government
legislation, regulations and policies; the risk of natural
phenomena including inclement weather conditions, fire, flood,
underground floods, earthquakes, pitwall failure and cave-ins;
failure of plant, equipment or processes to operate as anticipated;
accidents, labour disputes and other risks of the mining industry;
delays in the completion of development or construction activities
and other factors listed under the heading "Risk Factors" in the
MD&A for the year ended December 31, 2007. Although management
of Denison has attempted to identify material factors that could
cause actual results to differ materially from those contained in
forward-looking-information and statements, which only apply as of
the date hereof and should not be relied upon as representing
Denison's views as of any subsequent date, there may be other
factors that cause results not to be as anticipated, estimated or
intended.
There can be no assurance that such statements will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on
forward-looking-information and statements. Denison does not
undertake to update any forward-looking-information and statements
that are included or incorporated by reference herein, except in
accordance with applicable securities laws.
OVERVIEW
Denison is a diversified, growth-oriented, intermediate uranium
producer with active uranium mining operations in both the U.S. and
Canada and development projects in Canada, Zambia and Mongolia.
Denison's assets include an interest in 2 of the 4 licensed and
operating conventional uranium mills in North America, with its
100% ownership of the White Mesa mill in Utah and its 22.5%
ownership of the McClean Lake mill in Saskatchewan. Both mills are
fully permitted and operating.
The Company also produces vanadium as a co-product from some of
its mines in Colorado and Utah. The Company is also in the business
of recycling uranium-bearing waste materials, referred to as
"alternate feed materials", for the recovery of uranium, alone or
in combination with other metals, at the Company's White Mesa
mill.
Denison enjoys a global portfolio of world-class exploration
projects, including properties in close proximity to the Company's
mills in the Athabasca Basin in Saskatchewan and in the Colorado
Plateau, Henry Mountains and Arizona Strip regions of the
southwestern United States. Denison also has exploration and
development properties in Mongolia, Zambia and, indirectly through
its investments in Australia and the U.S.
Denison is the manager of Uranium Participation Corporation
("UPC"), a publicly traded company which invests in uranium oxide
in concentrates and uranium hexafluoride. Denison is also engaged
in mine decommissioning and environmental services through its
Denison Environmental Services ("DES") division.
Denison is a reporting issuer in all of the Canadian provinces.
Denison's common shares are listed on the Toronto Stock Exchange
(the "TSX") under the symbol "DML" and on the American Stock
Exchange (the "AMEX") under the symbol "DNN".
SELECTED FINANCIAL INFORMATION
The following selected financial information was obtained
directly from or calculated using the Company's consolidated
financial statements for the three months and nine months ended
September 30, 2008, and 2007.
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
(in thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Results of
Operations:
Total revenues $ 36,483 $ 9,411 $ 86,377 $ 39,939
Net income (loss) 332 (11,721) (23,886) 23,702
Earnings (loss)
per share - Basic 0.00 (0.06) (0.13) 0.13
- Diluted 0.00 (0.06) (0.13) 0.12
----------------------------------------------------------------------------
As at As at
Financial Position: Sept. 30, December 31,
2008 2007
----------------------------------------------------------------------------
Working capital $ 63,719 $ 75,915
Long-term
investments 21,039 20,507
Property, plant
and equipment 755,884 727,823
Total assets 1,010,504 1,001,581
Total long-term
liabilities $ 280,793 $ 175,081
----------------------------------------------------------------------------
RESULTS OF OPERATIONS
General
The Company recorded net income of $332,000 ($0.00 per share)
for the three months ended September 30, 2008 compared with a net
loss of $11,721,000 ($0.06 per share) for the same period in 2007.
For the nine months ended September 30, 2008, the Company recorded
a net loss of $23,886,000 ($0.13 per share) compared with net
income of $23,702,000 ($0.13 per share) for the same period in
2007.
Revenues totaled $36,483,000 for the three months ended
September 30, 2008 and $86,377,000 for the nine months ended
September 30, 2008 compared with $9,411,000 and $39,939,000 for the
same periods in 2007. Expenses totaled $47,111,000 for the three
months ended September 30, 2008 and $105,750,000 for the nine
months ended September 30, 2008 compared to $21,251,000 and
$56,921,000 for the same periods in 2007. Net other income
(expense) totaled $8,451,000 for the three months ended September
30, 2008 and ($65,000) for the nine months ended September 30, 2008
compared with ($893,000) and $37,343,000 for the same periods in
2007.
Revenues
Uranium sales revenue for the third quarter was $34,600,000.
Sales from U.S. production were 370,000 pounds U3O8 at an average
price of $66.12 per pound. Sales of Canadian production were
147,000 pounds U3O8 at an average price of $61.35 per pound.
Amortization of the fair value increment related to long term
contracts from the acquisition of Denison Mines Inc. ("DMI")
totaled $947,000 for the third quarter. Reported revenue is also
impacted by the effect of foreign currency translations.
For the nine months ended September 30, 2008, uranium sales
revenue totaled $79,776,000 consisting of sales of 520,000 pounds
U3O8 from U.S. production at an average price of $71.71 and sales
of 565,950 pounds of production from the McClean Lake joint venture
at an average price of $59.01 per pound. Amortization of the fair
value increment related to long term sales contracts from the
acquisition of DMI totaled $8,590,000.
Uranium sales revenue for the same periods in 2007 totaled
$7,395,000 for the three months and $30,951,000 for the nine months
ended September 30, 2007 from the sale of 85,000 pounds U3O8 and
270,000 pounds U3O8 from Canadian production and sales of 75,000
pounds U3O8 from U.S. production all in the second quarter.
Amortization of the fair value increment from DMI sales contracts
was $503,000 and $1,512,000 respectively.
Denison currently markets its uranium from the McClean Lake
joint venture jointly with AREVA Resources Canada Inc. ("ARC").
Denison' share of current contracts sales volumes jointly marketed
with ARC is set out in the table below:
Contracted Canadian Sales Volumes
---------------------------------
(pounds U3O8 x 1000)
(in thousands) 2008 2009 2010 Pricing
---- ---- ---- ------------------
Market Related 588 392 49 80% to 85% of Spot
Legacy Base Escalated 95 0 0 $20.00 to $26.00
Legacy Market Related 60 0 0 96% of Spot
Agreements with AREVA call for production to be allocated first
to the market related contracts with any surplus to be apportioned
evenly over the legacy contracts. The legacy base-escalated
contracts have pricing formulas that result in sales prices well
below current market prices.
The joint marketing of Canadian uranium production will cease at
the end of 2008 except for the market related contracts above.
Future long-term sales agreements for the Company's uranium
inventory and production are expected to be primarily under market
related contracts.
In addition to the contracts noted above, the Company currently
has two other long-term contracts in place. One is for the sale of
17% of the White Mesa mill production commencing in 2008 up to a
total of 6.5 million pounds with a minimum of 250,000 pounds in
2008, 500,000 pounds in 2009 and increasing to a minimum of 1
million pounds by 2011. The sales price is 95% of the published
long-term price for the month prior to delivery with a floor price
of $45.00. The second contract is for 20% of the production from
the White Mesa mill during the years 2012 to 2017 inclusive, but
not less than 200,000 pounds per year. Pricing under this contract
is 95% of the long term price at the time of delivery with an
escalated floor price of $50.00 per pound.
Revenue from the environmental services division was $1,434,000
for the three months ended September 30, 2008 compared to
$1,443,000 in the comparable 2007 period and was $3,929,000 for the
nine months ended September 30, 2008 compared with $3,391,000 for
the same period in 2007.
Revenue from the management contract with Uranium Participation
Corporation was $425,000 for the three months ended September 30,
2008 and $2,611,000 for the nine months ended September 30, 2008
compared to $505,000 and $3,118,000 in the same periods in
2007.
Operating Expenses
Milling and Mining Expenses
The McClean Lake joint venture produced 818,000 pounds U3O8 for
the three months ended September 30, 2008 and 2,566,000 pounds U3O8
for the nine months ended September 30, 2008 compared with 385,000
pounds U3O8 for the three months and 1,169,000 pounds U3O8 for the
nine months ended September 30, 2007. Denison's 22.5% share of
production totaled 184,000 pounds and 577,000 pounds respectively
for the 2008 periods and 87,000 pounds and 264,000 pounds
respectively for the 2007 periods.
Unit production cash costs in Canada are driven primarily by
production volumes as the majority of costs do not vary with
volume. These fixed costs for the McClean operations total
approximately Cdn$46 million per year so as production volumes
increase, the cost per pound decreases. Reagent costs are in
addition to this cost as are amortization, depletion and
depreciation costs. Production by the joint venture in 2008 is
expected to be 3.2 million pounds U3O8. Canadian production costs
for the quarter were CDN$58.92 per pound U3O8 including CDN$34.99
per pound U3O8 for amortization, depletion and depreciation costs.
For the nine months ended September 30, 2008, production costs were
CDN$55.94 per pound U3O8 including CDN$33.89 per pound U3O8 for
amortization, depletion and depreciation costs.
Inventory from Canadian production was 46,000 pounds U3O8 at
September 30, 2008.
The Company began processing conventional ore at the White Mesa
mill on April 28, 2008. Prior to that the Company was processing
alternate feed material and produced 94,000 pounds U3O8 prior to
beginning processing conventional ore. Production from conventional
ore was 286,000 pounds U3O8 and 306,000 pounds U3O8 for the three
months and nine months ended September 30, 2008. The Company also
produced 250,000 pounds V2O5 commencing in the third quarter. For
the nine months ended September 30, 2008, production costs for
processing conventional ore totaled $61.93 per pound U3O8 and
vanadium equivalent including $24.38 per pound amortization,
depletion and depreciation.
Inventory from U.S. production was 76,500 pounds U3O8 and
250,000 pounds V2O5 at September 30, 2008.
Sales Royalties and Capital Taxes
Sales royalties and capital taxes totaled $662,000 and
$2,470,000 for the three and nine months ended September 30, 2008
compared with $522,000 and $1,503,000 for the same periods in 2007.
Denison pays a Saskatchewan basic uranium royalty of 4% of gross
uranium sales after receiving the benefit of a 1% Saskatchewan
resource credit. Denison also pays Saskatchewan capital taxes based
on the greater of 3.0% of gross uranium sales or capital tax
otherwise computed under the Saskatchewan Corporation Capital Tax
Act. The Saskatchewan government also imposes a tiered royalty
which ranges from 6% to 15% of gross uranium sales after recovery
of mill and mine capital allowances which approximate capital
costs. Denison has sufficient mill and mine capital allowances
available or anticipated to shelter it from the tiered royalty at
current uranium prices for 2008.
MINERAL PROPERTY EXPLORATION
Denison is engaged in uranium exploration, as both operator and
non-operator of joint ventures and as operator of its own
properties in Canada, the U.S., Mongolia and Zambia. For the three
months ended September 30, 2008 exploration expenditures totaled
$7,682,000 compared to $8,385,000 for the three months ended
September 30, 2007. For the nine months ended September 30, 2008
exploration expenditures totaled $18,034,000 compared with
$16,914,000 for the nine months ended September 30, 2007.
In the Athabasca Basin region of Saskatchewan, Denison is
engaged in uranium exploration on advanced projects as part of the
ARC operated McClean and Midwest joint ventures and is also
participating in a total of 33 other exploration projects
concentrated in the prospective eastern margin of the Athabasca
Basin. Denison's share of exploration spending on its Canadian
properties totaled $3,042,000 of which $2,855,000 was expensed in
the statement of operations for the three months ended September
30, 2008. For the three months ended September 30, 2007,
exploration spending totaled $5,612,000 of which $5,547,000 was
expensed. For the nine months ended September 30, 2008, Denison's
share of exploration spending on its Canadian properties totaled
$12,210,000 of which $11,329,000 was expensed compared with
spending of $14,045,000 of which $13,441,000 was expensed in the
nine months ended September 30, 2007.
Exploration expenditures of $2,099,000 for the three months
ended September 30, 2008 ($2,716,000 for the three months ended
September 30, 2007) and of $3,520,000 for the nine months ended
September 30, 2008 ($3,177,000 for the nine month period in 2007)
were incurred in Mongolia on the Company's joint venture and 100%
owned properties. The Company has a 70% interest in the Gurvan
Saihan Joint Venture ("GSJV") in Mongolia. The other parties to the
joint venture are the Mongolian government as to 15% and
Geologorazvedka, a Russian government entity, as to 15%. Additional
expenditures for development of the GSJV's Hairhan uranium deposits
have also been incurred. Development work includes extensive
resource delineation drilling, hydrogeological drilling, plant
design and environmental studies.
In Zambia, the Company commenced exploration activities during
the quarter including an airborne geophysical survey, linecutting
and drilling. Exploration expenditures during the quarter totaled
$2,465,000. Additional expenditures for development of the Mutanga
project continued. This work included development and
hydrogeological drilling, metallurgical test work, environmental
studies and engineering.
General and Administrative
General and administrative expenses totaled $4,322,000 for the
three months ended September 30, 2008 compared with $3,138,000 for
the three months ended September 30, 2007. For the nine months
ended September 30, 2008, general and administrative expenses
totaled $13,116,000 compared to $9,598,000 for the same period in
2007. The increase was primarily the result of the acquisition and
implementation of new information and financial systems, an
increase in public company expenses due to additional compliance
costs and an increase in stock based compensation costs resulting
from stock options granted in 2008. General and administrative
expenses consist primarily of payroll and related expenses for
personnel, contract and professional services and other overhead
expenditures.
Other Income and Expenses
Other income (expense) totaled $8,451,000 for the three months
ended September 30, 2008 compared with ($893,000) for the three
months ended September 30, 2007. For the nine months ended
September 30, 2008, other income (expense) totaled ($65,000)
compared to $37,343,000 for the same period in 2007. During the
third quarter, this consists primarily of interest expense, and
foreign exchange gains. Foreign exchange gains totaled $9,197,000
for the three months and $232,000 for the nine months ended
September 30, 2008. The translation of the Zambian kwacha to U.S.
dollars accounts for the majority of these amounts. This is
primarily the result from translating future income taxes payable
relating to the Mutanga project. In 2007, other income (expense)
was primarily due to gains on the sale of portfolio investments
which totaled $1,108,000 and $39,751,000 for the three months and
nine month periods in 2007.
Other income (expense) included interest incurred on company
indebtedness of $902,000 for the three months and $1,422,000 for
the nine months ended September 30, 2008.
Income Taxes
The Company has provided for a current tax recovery of
$2,342,000 and for a future tax expense of $6,790,000. In March,
2008, the Zambian government enacted legislation which increased
the income tax rate for mining companies from 25% to 30%.
Accordingly, the Company recorded a future tax expense of
$10,740,000 in the first quarter to adjust the future income tax
liability. This amount has been partially offset by the recognition
of previously unrecognized Canadian tax assets of $3,700,000.
Outlook
Mining and Production
Canada
Mining of the Sue B deposit, which contains approximately 1.4
million pounds U3O8, has commenced. Milling of the stockpiled Sue
E, Sue B and Sue A ore is ongoing and U3O8 production at McClean
Lake in 2008 is expected to be 3.2 million pounds of which
Denison's share is 720,000 pounds. Stripping and mining of the
Caribou deposit is expected to commence in March 2009. Denison's
share of production in 2009 is expected to be 750,000 pounds
U3O8.
United States
Five mines are operating on the Colorado Plateau with production
from the Sunday, Pandora, Topaz, West Sunday and Rim mines running
at about 400 tons per day. At the Tony M mine within the Henry
Mountains Complex, located in Utah, production is currently
approximately 340 tons per day. In addition to the mined ore,
historic stockpile ore from Tony M is being hauled to the mill at a
rate of approximately 470 tons per day. There is an estimated
85,000 tons of this stockpile material remaining at the mine site.
Production from these mines is being hauled to Denison's White Mesa
mill. At September 30, 2008, a total of 289,000 tons had been
shipped to the mill of which 140,500 tons have been fed to the
mill. Mine development work has begun at the Beaver mine located on
the Colorado Plateau. Ore production from this mine is anticipated
to begin in December 2008 and will ramp up to 150 tons per day by
second quarter 2009. At the Company's Arizona 1 mine on the Arizona
Strip located in northeastern Arizona, the shaft rehabilitation and
ventilation raises are complete. The air quality permitting process
is underway but the Company is unable to determine the length of
time required to receive the permit.
Processing of conventional ore at the mill began on April 28,
2008. The mill processed uranium-only ore to June 30, 2008. On July
1, 2008, processing of the uranium/vanadium ores from the Company's
Colorado Plateau mines commenced. Some Tony M ore was processed in
August as the vanadium circuit worked through some commissioning
issues. The mill is anticipating processing Colorado Plateau ore
for the remainder of the year. The relining of tailings cell 4A is
complete and approval of the operating permit has been
received.
The Company expects to produce 1.0 million pounds U3O8 and 1.5
to 2.0 million pounds V2O5 during 2008 at the White Mesa mill. In
2009, production at the White Mesa mill is expected to be 1.4
million to 1.8 million pounds U3O8 and 2.6 million to 3.2 million
pounds V2O5.
Sales
The Company expects to sell 1.6 to 1.7 million pounds of U3O8 in
2008 including 0.9 to 1.0 million pounds from U.S. production. The
Company currently has agreements in place to sell 400,000 pounds
from U.S. production at an average price of $61.50 and 177,000
pounds from Canadian production at an expected price of about
$52.00 per pound in the fourth quarter. It also anticipates selling
1.0 to 1.3 million pounds of vanadium. Vanadium prices are quite
volatile but have recently been quoted at $10 to $11 per pound
V2O5.
Sales in 2009 are expected to be 2.1 to 2.4 million pounds U3O8
and 3 million pounds V2O5.
Exploration(1)
Athabasca Basin
In the Athabasca Basin, Denison is participating in a total of
35 exploration projects, located in the eastern part of the Basin
and within trucking distance of all the three operating mills in
the area. Denison and its joint venture partners carried out an
extensive exploration program during the quarter with drilling
activity on 8 of these 35 projects.
On the 60% owned Wheeler River property, a new zone of
unconformity hosted uranium mineralization at a depth of less than
400 metres was discovered and reported in the second quarter.
Preliminary results were reported based on eU3O8 grades.
Confirmatory split core assay results have now been received from
these holes, and have substantially upgraded the intersections.
Drill hole WR-249 graded 1.72% U3O8(2) over 1.35 metres(3) as
compared to the previously reported grade of 0.263% eU3O8 over 2.0
metres and drill hole WR-251 graded 0.775% U3O8 over 2.25 metres as
compared to the previously reported grade of 0.248% eU3O8 over 2.8
metres. In addition, late in the summer, WR-253 was spotted 15
metres to the south-east of WR251, and intersected the target
horizon at the unconformity and returned the highest results to
date of 1.40% U3O8 over 4.0 metres, in the sandstone, and 1.75%
U3O8 over 0.5 metres, in the basement.
The new Zone R has only been tested on two sections with 600
metres of untested strike length between the two sections. A drill
hole 30 metres to the northeast of WR-253 overshot the zone, and
WR-255, the last hole of the season located 30 metres southwest of
WR-253, was lost in a void in an intensely altered zone above the
unconformity. The geophysical signature extends a further 300
metres to the southwest and 150 metres to the northeast of the
current sections, indicating a potential one-kilometre long zone.
Infill and stepout drilling is scheduled for 2009.
Denison's exploration spending in 2008 in the Athabasca Basin is
expected to total approximately $13,300,000.
(1) The technical information contained in this MD&A
relating to the above-described exploration activities is reported
and verified by William C. Kerr, Denison's Vice President,
Exploration, who is a "qualified person" as defined in National
Instrument 43-101.
(2) Values reported herein are based on a 0.05% U3O8 cutoff.
(3) All intersections and geological interpretations are based
on diamond drill core only and mineralized intervals may not
represent true thickness. For a description of the quality
assurance program and quality control measure applied by Denison
during the above described work, please see Denison's Annual
Information Form filed on March 28, 2008 under the Company's
profile on the SEDAR website at www.sedar.com.
Southwest United States
Drilling began early in the quarter on the Monogram Mesa project
in the U.S. While interesting and low level mineralization was
identified in several widely spaced holes, no significant
mineralization was noted. A drill program near the Company's
Pandora mine is scheduled to begin in mid-November.
Mongolia
Work in Mongolia was completed late in the quarter and consisted
of a total of over 72,000 metres of drilling in 474 holes on five
projects. Three new discoveries were made this season: at Hairhan
along trend of the known mineralization; at Haraat parallel to
known mineralization; and, a new zone at Ulziit. All these new
discoveries will require additional drilling.
On the development side, hydrogeological work continued to
mid-September in support of baseline and monitoring test wells at
Hairhan. A number of environmental radiological programs were
initiated and will continue in support of advancement to commercial
ISR production at Hairhan.
An updated 43-101 compliant resource estimate for the Hairhan
deposit which will incorporate the 2007 and 2008 drilling results
will be completed in the first quarter of 2009. A revised 43-101
compliant resource estimate on the Haraat deposit is scheduled to
be completed in the second quarter of 2009.
Zambia
Site activities during this quarter consisted of completion of a
major airborne geophysical survey, detailed linecutting and
exploration drilling on selected areas outside of the two proposed
pit sites, hydrogeological drilling to define baseline
hydrogeological groundwater parameters, and environmental baseline
studies. A total of three drill rigs continued work during the
quarter and completed over 55,000 metres of drilling year to date,
composed of 41,742 metres in support of development drilling,
10,654 metres committed to exploration drilling, and 2,087 metres
devoted to hydrogeological drilling.
Three areas can be classified as new uraniferous discoveries
based on work during this quarter and require further confirmatory
and infill drilling in subsequent programs. (See release dated
September 18, 2008) All the new discoveries are located within 5
kilometres of the main Mutanga deposit which is scheduled to be the
first deposit mined.
In addition to the site activities, other project activities
include: a 43-101 report on the Mutanga and Dibwe deposits, which
is scheduled to be completed in the fourth quarter; metallurgical
test work, including a pilot plant test and heap leach test work;
infrastructure studies; development of a relocation plan; and,
engineering in order to complete a detailed feasibility study by
the end of the first quarter of 2009.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $15,879,000 at September 30, 2008
compared with $19,680,000 at December 31, 2007. The decrease of
$3,801,000 was due primarily to expenditures of $82,058,000 for
property, plant and equipment, the purchase of long term
investments totaling $13,413,000 and cash used in operations of
$9,437,000 financed by an increase in debt obligations of
$101,259,000.
Net cash used in operating activities was $9,437,000 during the
nine month period ended September 30, 2008. Net cash from operating
activities is comprised of net income for the period, adjusted for
non-cash items and for changes in working capital items.
Significant changes in working capital items during the period
include a decrease of $18,120,000 in trade and other receivables
and an increase of $42,112,000 in inventories. The decrease in
trade and other receivables is primarily the result of the level of
uranium sales in the period. The increase in inventories consists
primarily of the increase in ore in stockpile, work in progress and
finished goods.
Net cash used in investing activities was $96,632,000 consisting
primarily of expenditures on property, plant and equipment of
$82,058,000 and the purchase of long term investments of
$13,413,000. The long term investment was the purchase of shares
and warrants in Uranerz Energy Corp.
Net cash from financing activities consisted of $101,259,000
from debt obligations and $1,527,000 from the exercise of stock
options.
In total, these sources and uses of cash resulted in a net cash
outflow of $3,801,000 during the nine month period.
The Company has in place a $125,000,000 revolving term credit
facility. The facility is repayable in full on June 30, 2011. The
facility requires mandatory prepayment of outstanding credit in
excess of $80,000,000 by June 30, 2009 should the Company's uranium
production in 2008 fall below 1,700,000 pounds. Agreement has been
reached with the lender to amend the production covenant to include
vanadium production equivalent to uranium at a five to one
ratio.
The borrower under the facility is Denison Mines Inc. ("DMI")
and Denison Mines Corp. ("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 Company is required to maintain the following financial
covenants on a consolidated basis:
- Minimum tangible net worth of $450,000,000 plus 50% of
positive quarterly net income and 50% of net proceeds of all equity
issues after December 31, 2007;
- Maximum ratio of total net debt to earnings before interest,
taxes, depreciation and amortization and other allowed adjustments
as defined in the credit agreement ("EBITDA"), of 3.5 to 1.0 for
each fiscal quarter starting with the fiscal quarter ending
December 31, 2008 and including the fiscal quarter September 30,
2009 and 3.0 to 1.0 for each fiscal quarter thereafter. EBITDA is
calculated on a rolling four quarters' basis commencing with the
third quarter 2008;
- Minimum interest coverage ratio of 3.0 to 1.0 using rolling
EBITDA and rolling interest expense for each fiscal quarter
starting with the fiscal quarter ending December 31, 2008; and
- Minimum current ratio of 1.1 to 1.0.
Interest payable under the facility is bankers acceptance rate
or London Interbank Offered Rate ("Libor") plus a margin or prime
rate plus a margin. The margin used is between 0 and 200 basis
points depending on the credit instrument used and the magnitude of
the net total debt to EBITDA ratio (the "ratio"). The facility is
subject to a standby fee of 40 to 55 basis points depending upon
the ratio. A standby fee of 55 basis points applies in all
circumstances where the amounts drawn under the facility are less
than $62,500,000.
While the above covenants do not apply to the third quarter, the
Company believes it would comply with all covenants based on third
quarter results.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet
arrangements.
TRANSACTIONS WITH RELATED PARTIES
The Company is a party to a management services agreement with
UPC. Under the terms of the agreement, the Company will receive the
following fees from UPC: a) a commission of 1.5% of the gross value
of any purchases or sales of U3O8 and UF6 completed at the request
of the Board of Directors of UPC; b) a minimum annual management
fee of CDN$400,000 (plus reasonable out-of-pocket expenses) plus an
additional fee of 0.3% per annum based upon UPC's net asset value
between CDN$100,000,000 and CDN$200,000,000 and 0.2% per annum
based upon UPC's net asset value in excess of CDN$200,000,000; c) a
fee of CDN$200,000 upon the completion of each equity financing
where proceeds to UPC exceed CDN$20,000,000; d) a fee of
CDN$200,000 for each transaction or arrangement (other than the
purchase or sale of U3O8 and UF6 ) of business where the gross
value of such transaction exceeds CDN$20,000,000 ("an initiative");
e) an annual fee up to a maximum of CDN$200,000, at the discretion
of the Board of Directors of UPC, for on-going maintenance or work
associated with an initiative; and f) a fee equal to 1.5% of the
gross value of any uranium held by UPC prior to the completion of
any acquisition of at least 90% of the common shares of UPC.
In accordance with the management services agreement, all
uranium investments owned by UPC are held in accounts with
conversion facilities in the name of Denison Mines Inc. as manager
for and on behalf of UPC.
The Company has also provided temporary revolving credit
facilities to UPC which generate interest and stand-by fee income.
No such facilities were in place during the nine month period ended
September 30, 2008.
In August 2008, the Company sold 50,000 pounds of U3O8 to UPC
for total consideration of $3,225,000.
The following transactions were incurred with UPC for the three
months and nine months ended September 30:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(in thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue
Uranium sales $ 3,225 $ - $ 3,225 $ 9,750
Management fees
(including
expenses) 377 466 1,378 1,656
Commission
fees on
purchase and
sale of
uranium 48 39 1,233 1,462
Other income
(expense)
Loan interest
under credit
facility - 6 - 197
Standby fee
under credit
facility - - - 9
----------------------------------------------------------------------------
Total fees
earned from UPC $ 3,650 $ 511 $ 5,836 $ 13,074
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30, 2008, accounts receivable includes $196,000 due
from UPC with respect to the fees indicated above.
During the nine months ended September 30, 2008, the Company
incurred management and administrative service fees of $142,000
(nine months ended September 30, 2007: $147,000) with a company
owned by the Chairman of the Company which provides corporate
development, office premises, secretarial and other services in
Vancouver. At September 30, 2008, no amounts were due to this
company.
OUTSTANDING SHARE DATA
At November 12, 2008, there were 190,020,415 common shares
issued and outstanding, 8,511,475 stock options outstanding to
purchase a total of 8,511,475 common shares and 3,321,151 warrants
outstanding to purchase a total of 9,564,915 common shares, for a
total of 208,096,805 common shares on a fully-diluted basis.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
During the third quarter of 2008, the Company substantially
completed the implementation of the Great Plains financial system
to support reporting of financial results. This system includes
integrated financial modules for accounts payable, accounts
receivable, fixed assets and inventory functions. Some work to
complete the implementation will continue into 2008. Management
believes that the implementation of the Great Plains financial
modules will improve the Company's internal control over financial
reporting.
Other than the changes mentioned above, no other changes in the
Company's internal control over financial reporting occurred during
the second quarter of 2008 that have materially affected, or are
reasonably likely to materially affect, the Company's internal
control over financial reporting.
CHANGES IN ACCOUNTING POLICIES
The Company adopted the following new accounting standards
issued by the Canadian Institute of Chartered Accountants ("CICA")
Handbook effective January 1, 2008:
a) CICA Handbook Section 3031 "Inventories" which provides
guidance on the determination of cost and its subsequent
recognition as an expense, including any write-down to net
realizable value. It also provides guidance on the cost formulas
that are used to assign costs to inventories. There was no impact
to the Company's financial results from adopting this standard.
b) CICA Handbook Section 3862 "Financial Instruments -
Disclosures" and Section 3863 "Financial Instruments -
Presentation" which requires disclosures in the financial
statements that will enable users to evaluate: the significance of
financial instruments for the company's financial positions and
performance; the nature and extent of risks arising from financial
instruments to which the company is exposed during the period and
at the balance sheet date; and how the company manages those
risks.
c) CICA Handbook Section 1535 "Capital Disclosures" which
requires the disclosure of both qualitative and quantitative
information that enable users to evaluate the company's objectives,
policies and processes for managing capital.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
The CICA has issued the following accounting standards which are
effective for the Company's fiscal years beginning on or after
January 1, 2009.
a) CICA Handbook Section 3064 "Goodwill and intangible assets"
which establishes revised standards for recognition, measurement,
presentation and disclosure of goodwill and intangible assets.
Concurrent with the introduction of this standard, the CICA
withdrew EIC 27 "Revenues and expenses during the pre-operating
period". As a result of the withdrawal of EIC 27, the Company will
no longer be able to defer costs and revenues incurred prior to
commercial production at new mine operations.
The Company has not yet determined the impact of adopting the
above accounting standards.
RISK FACTORS
There are a number of factors that could negatively affect
Denison's business and the value of Denison's securities, including
the factors listed in the Company's Annual Information Form and in
the Company's annual MD&A dated March 18, 2008 available at
www.sedar.com and Form 40-F available at www.sec.gov. The
information pertains to the outlook and conditions currently known
to Denison that could have a material impact on the financial
condition of Denison. This information, by its nature, is not
all-inclusive. It is not a guarantee that other factors will not
affect Denison in the future.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Consolidated Balance Sheets
(Unaudited - Expressed in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
2008 2007
----------------------------------------------------------------------------
ASSETS
Current
Cash and equivalents $ 15,879 $ 19,680
Trade and other receivables 20,614 39,667
Note receivable 249 455
Inventories (Note 3) 47,687 30,921
Investments (Note 4) - 13,930
Prepaid expenses and other 2,589 1,492
----------------------------------------------------------------------------
87,018 106,145
Inventories - ore in stockpiles (Note 3) 6,226 -
Investments (Note 4) 21,039 20,507
Property, plant and equipment, net (Note 5) 755,884 727,823
Restricted investments (Note 6) 20,524 17,797
Intangibles (Note 7) 5,862 6,979
Goodwill (Note 8) 113,951 122,330
----------------------------------------------------------------------------
$ 1,010,504 $ 1,001,581
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 19,494 $ 22,642
Current portion of long-term liabilities:
Post-employment benefits (Note 9) 376 404
Reclamation and remediation obligations
(Note 10) 526 565
Debt obligations (Note 11) 58 42
Other long-term liabilities (Note 12) 2,845 6,577
----------------------------------------------------------------------------
23,299 30,230
Deferred revenue 2,867 2,359
Provision for post-employment benefits
(Note 9) 3,645 4,030
Reclamation and remediation obligations
(Note 10) 19,890 19,824
Debt obligations (Note 11) 101,332 -
Other long-term liabilities (Note 12) 1,966 7,343
Future income tax liability (Note 22) 151,093 141,525
----------------------------------------------------------------------------
304,092 205,311
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 13) 660,205 662,949
Share purchase warrants (Note 14) 11,728 11,728
Contributed surplus (Notes 15 & 16) 26,359 25,471
Deficit (38,720) (14,834)
Accumulated other comprehensive income
(Note 17)
Unrealized gains (losses) on investments (5,283) 18,100
Cumulative foreign currency translation gain 52,123 92,856
----------------------------------------------------------------------------
706,412 796,270
----------------------------------------------------------------------------
$ 1,010,504 $ 1,001,581
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Issued and outstanding common shares
(Note 13) 190,020,415 189,731,635
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contingent liabilities and commitments (Note 23)
See accompanying notes to the consolidated financial statements
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Consolidated Statements of Operations and Deficit and Comprehensive Income
(Loss)
(Unaudited - Expressed in thousands of U.S. dollars except for per share
amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30 September 30 September 30 September 30
2008 2007 2008 2007
----------------------------------------------------------------------------
REVENUES $ 36,483 $ 9,411 $ 86,377 $ 39,939
----------------------------------------------------------------------------
EXPENSES
Operating expenses 34,445 9,206 72,130 28,906
Sales royalties and
capital taxes 662 522 2,470 1,503
Mineral property
exploration 7,682 8,385 18,034 16,914
General and
administrative 4,322 3,138 13,116 9,598
----------------------------------------------------------------------------
47,111 21,251 105,750 56,921
----------------------------------------------------------------------------
Loss from operations (10,628) (11,840) (19,373) (16,982)
Other income (expense),
net (Note 18) 8,451 (893) (65) 37,343
----------------------------------------------------------------------------
Income (loss) for the
period before taxes (2,177) (12,733) (19,438) 20,361
Income tax recovery
(expense) (Note 22):
Current 752 1,685 2,342 (50)
Future 1,757 (673) (6,790) 3,391
----------------------------------------------------------------------------
Income (loss) for the
period $ 332 $ (11,721) $ (23,886) $ 23,702
----------------------------------------------------------------------------
Deficit, beginning of
period (39,052) (26,655) (14,834) (62,078)
----------------------------------------------------------------------------
Deficit, end of period $ (38,720) $ (38,376) $ (38,720) $ (38,376)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income (loss) for the
period $ 332 $ (11,721) $ (23,886) $ 23,702
Other comprehensive
income (loss) (Note 17)
Change in foreign
currency translation (24,181) 49,125 (40,733) 110,979
Change in unrealized
gain (loss) on
investments - net (42,783) 272 (23,383) 3,737
----------------------------------------------------------------------------
Comprehensive income
(loss) $ (66,632) $ 37,676 $ (88,002) $ 138,418
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss)
per share:
Basic $ 0.00 $ (0.06) $ (0.13) $ 0.13
Diluted $ 0.00 $ (0.06) $ (0.13) $ 0.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted-average number
of shares outstanding
(in thousands):
Basic 190,013 189,697 189,880 188,393
Diluted 191,309 189,697 189,880 193,771
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Consolidated Statements of Cash Flows
(Unaudited - Expressed in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
CASH PROVIDED BY September 30 September 30 September 30 September 30
(USED IN): 2008 2007 2008 2007
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss)
for the period $ 332 $ (11,721) $ (23,886) $ 23,702
Items not affecting
cash:
Depletion,
depreciation,
amortization and
accretion 23,833 3,114 34,317 8,498
Stock-based
compensation 652 342 1,884 1,030
Losses (gains) on
asset disposals - (979) (181) (39,695)
Losses (gains) on
restricted
investments (138) (328) (175) (275)
Mineral property
write-downs and
other non-cash - 1,691 - 1,691
Change in future
income taxes (1,757) 673 6,790 (3,391)
Foreign exchange (12,998) - (232) -
Net change in
non-cash working
capital items
Trade and other
receivables 5,626 (1,840) 18,120 (2,263)
Inventories (26,852) (6,175) (42,112) (9,641)
Prepaid expenses
and other assets 183 941 (1,134) 342
Accounts payable
and accrued
liabilities 94 5,040 (2,548) 8,296
Post-employment
benefits (78) (105) (284) (314)
Reclamation and
remediation
obligations (138) (116) (504) (297)
Deferred revenue 134 324 508 (1,727)
----------------------------------------------------------------------------
Net cash used in
operating activities (11,107) (9,139) (9,437) (14,044)
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Decrease (increase)
in notes receivable 93 (14) 206 9,677
Purchase of long-term
investments - (121,962) (13,413) (171,728)
Proceeds from sale of
long-term investments - 1,232 1,320 46,678
Expenditures on
property, plant and
equipment (17,094) (15,489) (82,058) (32,465)
Proceeds from sale
of property, plant
and equipment - 242 4 330
Decrease (increase)
in restricted
investments (2,309) (445) (2,691) (1,204)
----------------------------------------------------------------------------
Net cash used in
investing activities (19,310) (136,436) (96,632) (148,712)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease)
in debt obligations 35,195 (13) 101,259 (34)
Issuance of common
shares for:
Private placements - - - 102,166
Exercise of stock
options and warrants 215 16 1,527 4,965
----------------------------------------------------------------------------
Net cash from
financing activities 35,410 3 102,786 107,097
----------------------------------------------------------------------------
Foreign exchange
effect on cash and
equivalents 3,498 19,504 (518) 38,222
----------------------------------------------------------------------------
Increase (decrease)
in cash and equivalents 8,491 (126,068) (3,801) (17,437)
Cash and equivalents,
beginning of period 7,388 177,758 19,680 69,127
----------------------------------------------------------------------------
Cash and equivalents,
end of period $ 15,879 $ 51,690 $ 15,879 $ 51,690
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Notes to the Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise noted)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Denison Mines Corp. ("DMC") is incorporated under the Business
Corporations Act (Ontario) ("OBCA"). Denison Mines Corp. and its
subsidiary companies and joint ventures (collectively, the
"Company") are engaged in uranium mining and related activities,
including acquisition, exploration and development of uranium
bearing properties, extraction, processing, selling and
reclamation. The environmental services division of the Company
provides mine decommissioning and decommissioned site monitoring
services for third parties.
The Company has a 100% interest in the White Mesa mill located
in Utah, United States and a 22.5% interest in the McClean Lake
mill located in the Athabasca Basin of Saskatchewan, Canada. The
Company has interests in a number of nearby mines at both
locations, as well as interests in development and exploration
projects located in Canada, the United States, Mongolia and Zambia,
some of which are operated through joint ventures. Uranium, the
Company's primary product, is produced in the form of uranium oxide
concentrates ("U3O8") and sold to various customers around the
world for further processing. Vanadium, a co-product of some of the
Company's mines is also produced. The Company is also in the
business of recycling uranium bearing waste materials, referred to
as "alternate feed materials".
Denison Mines Inc. ("DMI"), a subsidiary of the Company is the
manager of Uranium Participation Corporation ("UPC"), a
publicly-listed investment holding company formed to invest
substantially all of its assets in U3O8 and uranium hexafluoride
("UF6"). The Company has no ownership interest in UPC but receives
various fees for management services and commissions from the
purchase and sale of U3O8 and UF6 by UPC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited consolidated financial statements have been
prepared by management in U.S. dollars, unless otherwise stated, in
accordance with generally accepted accounting principles in Canada
("Canadian GAAP") for interim financial statements.
Certain information and note disclosures normally included in
the annual consolidated financial statements prepared in accordance
with Canadian GAAP have been condensed or excluded. As a result,
these unaudited interim consolidated financial statements do not
contain all disclosures required for annual financial statements
and should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year
ended December 31, 2007.
All material adjustments which, in the opinion of management,
are necessary for fair presentation of the results of the interim
periods have been reflected in these financial statements. The
results of operations for the nine months ended September 30, 2008
are not necessarily indicative of the results to be expected for
the full year.
These unaudited interim consolidated financial statements are
prepared following accounting policies consistent with the
Company's audited consolidated financial statements and notes
thereto for the year ended December 31, 2007, except for the
changes noted under the "New Accounting Standards Adopted" section
below.
Significant Mining Interests
The following table sets forth the Company's ownership of its
significant mining interests that have projects at the development
stage within them as at September 30, 2008:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Ownership
Location Interest
----------------------------------------------------------------------------
Through majority owned subsidiaries
Arizona Strip USA 100.00%
Henry Mountains USA 100.00%
Colorado Plateau USA 100.00%
Sunday Mine USA 100.00%
Gurvan Saihan Joint Venture Mongolia 70.00%
Mutanga Zambia 100.00%
As interests in unincorporated joint ventures,
or jointly controlled assets
McClean Lake Canada 22.50%
Midwest Canada 25.17%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
New Accounting Standards Adopted
The Company adopted the following new accounting standards
issued by the Canadian Institute of Chartered Accountants ("CICA")
Handbook effective January 1, 2008:
a) CICA Handbook Section 3031 "Inventories" which provides
guidance on the determination of cost and its subsequent
recognition as an expense, including any write-down to net
realizable value. It also provides guidance on the cost formulas
that are used to assign costs to inventories. There was no impact
to the Company's financial results from adopting this standard.
b) CICA Handbook Section 3862 "Financial Instruments -
Disclosures" and Section 3863 "Financial Instruments -
Presentation" which requires disclosures in the financial
statements that will enable users to evaluate: the significance of
financial instruments for the company's financial positions and
performance; the nature and extent of risks arising from financial
instruments to which the company is exposed during the period and
at the balance sheet date; and how the company manages those risks
(see note 21).
c) CICA Handbook Section 1535 "Capital Disclosures" which
requires the disclosure of both qualitative and quantitative
information that enable users to evaluate the company's objectives,
policies and processes for managing capital (see note 21).
Accounting Standards Issued but not yet Adopted
The CICA has issued the following accounting standards which are
effective for the Company's fiscal years beginning on or after
January 1, 2009:
a) CICA Handbook Section 3064 "Goodwill and intangible assets"
which establishes revised standards for recognition, measurement,
presentation and disclosure of goodwill and intangible assets.
Concurrent with the introduction of this standard, the CICA
withdrew EIC 27 "Revenues and expenses during the pre-operating
period". As a result of the withdrawal of EIC 27, the Company will
no longer be able to defer costs and revenues incurred prior to
commercial production at new mine operations.
The Company has not yet determined the impact of adopting the
above accounting standards.
Comparative Numbers
Certain classifications of the comparative figures have been
changed to conform to those used in the current period.
3. INVENTORIES
The inventories balance consists of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2008 2007
----------------------------------------------------------------------------
Uranium concentrates and work-in-progress $ 13,264 $ 8,344
Vanadium concentrates and work-in-progress 5,469 -
Inventory of ore in stockpiles 30,766 19,289
Mine and mill supplies 4,414 3,288
----------------------------------------------------------------------------
$ 53,913 $ 30,921
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inventories:
Current $ 47,687 $ 30,921
Long-term - ore in stockpiles 6,226 -
----------------------------------------------------------------------------
$ 53,913 $ 30,921
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term ore in stockpile inventory represents an estimate of
the amount of pounds on the stockpile in excess of the next twelve
months of planned mill production.
4. LONG-TERM INVESTMENTS
The long-term investments balance consists of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2008 2007
----------------------------------------------------------------------------
Portfolio investments
Available for sale securities at fair
value $ 21,039 $ 34,437
----------------------------------------------------------------------------
$ 21,039 $ 34,437
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Investments:
Current $ - $ 13,930
Long-term 21,039 20,507
----------------------------------------------------------------------------
$ 21,039 $ 34,437
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Purchases
During the nine months ended September 30, 2008, the Company
acquired additional equity interests at a cost of $13,413,000.
In April 2008, the Company purchased 5,465,000 units of Uranerz
Energy Corporation ("Uranerz"), a public company listed on the
Toronto, American and Frankfurt Stock Exchanges, for an aggregate
purchase price of approximately $13,365,000. Each unit is comprised
of one common share and one-half of one common share purchase
warrant. Each whole warrant will entitle the holder to purchase one
additional share of Uranerz common stock for a period of 24 months
after closing (subject to acceleration under certain conditions) at
an exercise price of US$3.50 per share.
Sales
During the nine months ended September 30, 2008, the Company
sold equity interests in several public companies for cash
consideration of $1,320,000. The resulting gain has been included
in net other income (expense) in the statement of operations (see
Note 18).
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2008 2007
----------------------------------------------------------------------------
Cost, net of write-downs
Plant and equipment
Mill and mining related $ 180,250 $ 135,375
Environmental services and other 2,622 2,742
Mineral properties 614,195 609,569
----------------------------------------------------------------------------
797,067 747,686
----------------------------------------------------------------------------
Accumulated depreciation and amortization
Plant and equipment
Mill and mining related 14,862 9,182
Environmental services and other 1,124 843
Mineral properties 25,197 9,838
----------------------------------------------------------------------------
41,183 19,863
----------------------------------------------------------------------------
Property, plant and equipment, net $ 754,884 $ 727,823
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net book value
Plant and equipment
Mill and mining related $ 165,388 $ 126,193
Environmental services and other 1,498 1,899
Mineral properties 588,998 599,731
----------------------------------------------------------------------------
$ 755,884 $ 727,823
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Mineral Properties
The company has various interests in development and exploration
projects located in Canada, the U.S., Mongolia and Zambia which are
held directly or through option or joint venture agreements.
Amounts spent on development projects are capitalized as mineral
property assets. Exploration projects are expensed.
Canada
In October 2004, the Company entered into an option agreement to
earn a 22.5% ownership interest in the Wolly project by funding
CDN$5,000,000 in exploration expenditures over the next six years.
As at September 30, 2008, the Company has incurred a total of
CDN$3,582,000 towards this option and has earned a 13.0% ownership
interest in the project under the phase-in ownership provisions of
the agreement.
In the first quarter of 2006, the Company entered into an option
agreement to earn up to a 75% interest in the Park Creek project.
The Company is required to incur exploration expenditures of
CDN$2,800,000 over three years to earn an initial 49% interest and
a further CDN$3,000,000 over two years to earn an additional 26%
interest. As at September 30, 2008, the Company has incurred a
total of CDN$3,329,000 towards the option and has earned a 49%
ownership interest in the project under the phase-in-ownership
provisions of the agreement.
6. RESTRICTED INVESTMENTS
The Company has certain restricted investments deposited to
collateralize its reclamation and certain other obligations. The
restricted investments balance consists of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2008 2007
----------------------------------------------------------------------------
U.S. mill and mine reclamation $ 18,587 $ 15,849
Elliot Lake reclamation trust fund 1,937 1,948
----------------------------------------------------------------------------
$ 20,524 $ 17,797
----------------------------------------------------------------------------
----------------------------------------------------------------------------
U.S. Mill and Mine Reclamation
The Company has cash and cash equivalents and fixed income
securities as collateral for various bonds posted in favour of the
State of Utah, the applicable state regulatory agencies in Colorado
and Arizona and the U.S. Bureau of Land Management for estimated
reclamation costs associated with the White Mesa mill and U.S.
mining properties. During the nine months ended September 30, 2008,
the Company has deposited an additional $2,123,000 into its
collateral account.
Elliot Lake Reclamation Trust Fund
Pursuant to its Reclamation Funding Agreement with the
Governments of Canada and Ontario, the Company deposited an
additional CDN$530,000 into the Elliot Lake Reclamation Trust Fund
during the nine months ended September 30, 2008.
7. INTANGIBLES
A continuity summary of intangibles is presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months
Ended
(in thousands) September 30, 2008
----------------------------------------------------------------------------
Intangibles, beginning of period $ 6,979
Amortization (701)
Foreign exchange (416)
----------------------------------------------------------------------------
Other intangibles, end of period $ 5,862
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other intangibles, by item:
UPC management contract 5,424
Urizon technology licenses 438
----------------------------------------------------------------------------
$ 5,862
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. GOODWILL
A continuity summary of goodwill is presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months
Ended
(in thousands) September 30, 2008
----------------------------------------------------------------------------
Goodwill, beginning of period $ 122,330
Foreign exchange (8,379)
----------------------------------------------------------------------------
Goodwill, end of period $ 113,951
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Goodwill, allocation by business unit:
Canada mining segment $ 113,951
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Goodwill is not amortized and is tested annually for impairment.
9. POST-EMPLOYMENT BENEFITS
A continuity summary of post-employment benefits is presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months
Ended
(in thousands) September 30, 2008
----------------------------------------------------------------------------
Post-employment liability, beginning of period $ 4,434
Benefits paid (284)
Interest cost 170
Foreign exchange (299)
----------------------------------------------------------------------------
Post-employment liability, end of period $ 4,021
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Post-employment benefits liability by duration:
Current $ 376
Non-current 3,645
----------------------------------------------------------------------------
$ 4,021
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. RECLAMATION AND REMEDIATION OBLIGATIONS
A continuity summary of reclamation and remediation obligations is presented
below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months
Ended
(in thousands) September 30, 2008
----------------------------------------------------------------------------
Reclamation obligations, beginning of period $ 20,389
Accretion 1,339
Expenditures incurred (504)
Liability adjustments (127)
Foreign exchange (681)
----------------------------------------------------------------------------
Reclamation obligations, end of period $ 20,416
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Site restoration liability by location:
U.S. Mill and Mines $ 11,143
Elliot Lake 7,695
McLean Lake and Midwest Joint Ventures 1,578
----------------------------------------------------------------------------
$ 20,416
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Site restoration liability :
Current $ 526
Non-current 19,890
----------------------------------------------------------------------------
$ 20,416
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11. DEBT OBLIGATIONS
Debt obligations consist of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2008 2007
----------------------------------------------------------------------------
Temporary line of credit $ - $ -
Revolving line of credit 101,332 -
Notes payable and other 58 42
----------------------------------------------------------------------------
$ 101,390 $ 42
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other long-term liabilities:
Current 58 42
Non-current 101,332 -
----------------------------------------------------------------------------
$ 101,390 $ 42
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Temporary Line of Credit
In March 2008, the Company replaced all prior credit facility
arrangements with a temporary CDN$40,000,000 uncommitted revolving
credit facility with the Bank of Nova Scotia secured by the assets
of DMI with interest payable at Canadian bank prime. In June 2008,
this facility was increased to CDN$70,000,000. As at June 30, 2008,
the Company had drawn CDN$66,816,000 under the facility and had
incurred interest expense of CDN$524,000 for this facility.
In July 2008, the temporary line of credit facility was replaced
with the revolving line of credit facility.
Revolving Line of Credit
In July 2008, the Company put in place a $125,000,000 revolving
term credit facility with the Bank of Nova Scotia. The facility is
repayable in full on June 30, 2011. The facility requires mandatory
prepayment of outstanding credit in excess of $80,000,000 should
the Company's uranium production in 2008 fall below 1,700,000
pounds.
The borrower under the facility is DMI and 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 Company is required to maintain certain financial covenants
on a consolidated basis.
Interest payable under the facility is bankers acceptance or
LIBOR rate plus a margin or prime rate plus a margin. The facility
is subject to standby fees.
As at September 30, 2008, the Company has drawn $102,301,000
under the facility and it has also deferred $1,054,000 of
incremental costs associated with its set-up. These costs, which
are netted into the liability amount, are being amortized over the
three year term of the facility.
12. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2008 2007
----------------------------------------------------------------------------
Unamortized fair value of sales contracts $ 3,758 $ 12,812
Unamortized fair value of toll milling
contracts 940 1,008
Other 113 100
----------------------------------------------------------------------------
$ 4,811 $ 13,920
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other long-term liabilities:
Current 2,845 6,577
Non-current 1,966 7,343
----------------------------------------------------------------------------
$ 4,811 $ 13,920
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Unamortized fair values of sales contracts are amortized to
revenue as deliveries under the applicable contracts are made.
13. SHARE CAPITAL
Denison is authorized to issue an unlimited number of common
shares without par value. A continuity summary of the issued and
outstanding common shares and the associated dollar amounts is
presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number of
Common
(in thousands except share amounts) Shares Amount
----------------------------------------------------------------------------
Balance at December 31, 2007 189,731,635 $ 662,949
----------------------------------------------------------------------------
Issues for cash
Exercise of stock options 288,780 1,527
Flow-through share liability renunciation - (5,267)
Fair value of stock options exercised - 996
----------------------------------------------------------------------------
288,780 (2,744)
----------------------------------------------------------------------------
Balance at September 30, 2008 190,020,415 $ 660,205
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Flow-Through Share Issues
The Company finances a portion of its exploration programs
through the use of flow-through share issuances. Income tax
deductions relating to these expenditures are claimable by the
investors and not by the Company. As at September 30, 2008, the
Company estimates that it has met its CDN$18,000,000 April 2007
flow-through share issue obligation. The Company renounced the tax
benefit of this issue to subscribers in February 2008.
14. SHARE PURCHASE WARRANTS
A continuity summary of the issued and outstanding share
purchase warrants in terms of common shares of the company and the
associated dollar amounts is presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number of
Common Shares Fair Value
(in thousands except share amounts) Issuable Amount
----------------------------------------------------------------------------
Balance at December 31, 2007 and September 30,
2008 9,564,915 $ 11,728
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share purchase warrants by series:
November 2004 series(1) 3,156,915 $ 5,898
March 2006 series(2) 6,408,000 5,830
----------------------------------------------------------------------------
9,564,915 $ 11,728
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The November 2004 series has an effective exercise price of CDN$5.21
per issuable share (CDN$15.00 per warrant adjusted for the 2.88 exchange
ratio associated with the Denison and IUC merger) and expires on
November 24, 2009;
(2) The March 2006 series has an effective exercise price of CDN$10.42 per
issuable share (CDN$30.00 per warrant adjusted for the 2.88 exchange
ratio associated with the Denison and IUC merger) and expires on March
1, 2011;
15. CONTRIBUTED SURPLUS
A continuity summary of contributed surplus is presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months
Ended
(in thousands) September 30, 2008
----------------------------------------------------------------------------
Balance, beginning of period $ 25,471
Stock-based compensation expense (note 16) 1,884
Fair value of stock options exercised (996)
----------------------------------------------------------------------------
Balance, end of period $ 26,359
----------------------------------------------------------------------------
----------------------------------------------------------------------------
16. STOCK OPTIONS
The Company's stock-based compensation plan (the "Plan")
provides for the granting of stock options up to 10% of the issued
and outstanding common shares at the time of grant, subject to a
maximum of 20 million common shares. As at September 30, 2008, an
aggregate of 12,677,900 options have been granted (less
cancellations) since the Plan's inception in 1997.
Under the Plan, all stock options are granted at the discretion
of the Company's board of directors, including any vesting
provisions if applicable. The term of any stock option granted may
not exceed ten years and the exercise price may not be lower than
the closing price of the Company's shares on the last trading day
immediately preceding the date of grant. In general, the term of
stock options granted under the Plan ranges from three to five
years and vesting occurs over a three year period.
A continuity summary of the stock options of the Company granted
under the Plan is presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted-
Average
Exercise
Number of Price per
Common Share
Shares (CDN $)
----------------------------------------------------------------------------
Stock options outstanding, beginning of period 5,961,354 $ 7.27
Granted 2,893,000 7.98
Exercised (288,780) 5.30
Expired (154,100) 8.73
----------------------------------------------------------------------------
Stock options outstanding, end of period 8,411,474 $ 7.55
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock options exercisable, end of period 5,423,901 $ 7.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
A summary of the Company's stock options outstanding at September 30, 2008
is presented below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted-
Average Average
Remaining Exercise
Range of Exercise Contractual Number of Price per
Prices per Share Life Common Share
(CDN$) (Years) Shares (CDN $)
----------------------------------------------------------------------------
Stock options outstanding
$ 1.87 to $ 4.99 5.78 1,018,175 $ 2.11
$ 5.00 to $ 8.50 5.35 4,789,799 6.88
$10.08 to $15.30 1.33 2,603,500 10.91
----------------------------------------------------------------------------
Stock options outstanding,
end of period 4.16 8,411,474 $ 7.55
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding options expire between September 2008 and October
2016.
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing model. The
following table outlines the range of assumptions used in the model
for the period:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months
Ended
September 30, 2008
----------------------------------------------------------------------------
Risk-free interest rate 2.86% - 3.29%
Expected stock price volatility 52.2% - 55.4%
Expected life 2.1 - 3.5 years
Expected dividend yield -
Fair value per share under options granted CDN$1.65 - CDN$4.49
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock-based compensation has been recognized in the consolidated statement
of operations as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30 September 30 September 30 September 30
(in thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Mineral property
exploration $ 59 $ 64 $ 173 $ 177
General and
administrative 593 278 1,711 853
----------------------------------------------------------------------------
$ 652 $ 342 $ 1,884 $ 1,030
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The fair values of stock options with vesting provisions are
amortized on a straight-line basis as stock-based compensation
expense over the applicable vesting periods. At September 30, 2008,
the Company had an additional $6,193,000 in stock-based
compensation expense to be recognized periodically to February
2011.
17. ACCUMULATED OTHER COMPREHENSIVE INCOME
A continuity summary of accumulated other comprehensive income is as
follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30 September 30 September 30 September 30
(in thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Accumulated other
comprehensive income,
beginning of period $ 113,804 $ 81,663 $ 110,956 $ (8,498)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cumulative foreign
currency translation
gain (loss)
Balance, beginning
of period $ 76,304 $ 53,356 $ 92,856 $ (8,498)
Change in foreign
currency (24,181) 49,125 (40,733) 110,979
----------------------------------------------------------------------------
Balance, end of
period 52,123 102,481 52,123 102,481
----------------------------------------------------------------------------
Unrealized gains on
investments
Balance, beginning
of period 37,500 28,307 18,100 -
Unrealized gains
as at January 1,
2007, net of tax (1) - - - 24,842
Net unrealized
gains (losses),
net of tax (2) (42,783) 272 (23,383) 3,737
----------------------------------------------------------------------------
Balance, end of period (5,283) 28,579 (5,283) 28,579
----------------------------------------------------------------------------
Accumulated other
comprehensive income,
end of period $ 46,840 $ 131,060 $ 46,840 $ 131,060
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Reflects the adoption of CICA Section 3855 on January 1, 2007.
(2) Unrealized gains (losses) on investments deemed available-for-sale
are included in other comprehensive income (loss) until realized. When
the investment is disposed of or incurs a decline in value that is
other than temporary, the gain (loss) is realized and reclassified to
the income statement.
18. OTHER INCOME AND EXPENSES
The elements of net other income in the statement of operations is as
follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30 September 30 September 30 September 30
(in thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Interest income,
net of fees $ 312 $ 1,194 $ 921 $ 4,436
Interest expense (902) - (1,422) -
Gains (losses) on:
Foreign exchange 9,197 (3,612) 232 (7,257)
Land, plant and
equipment - (1) 125 (18)
Portfolio
investments - 1,108 195 39,751
Restricted
investments 138 328 175 275
Equity gain of
affiliates - - - -
Other (294) 90 (291) 156
----------------------------------------------------------------------------
Other income
(expense), net $ 8,451 $ (893) $ (65) $ 37,343
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19. SEGMENTED INFORMATION
Business Segments
The Company operates in two primary segments - the mining
segment and the corporate and other segment. The mining segment,
which has been further subdivided by major geographic regions,
includes activities related to exploration, evaluation and
development, mining, milling and the sale of mineral concentrates.
The corporate and other segment includes the results of the
Company's environmental services business, management fees and
commission income earned from UPC and general corporate expenses
not allocated to the other segments.
For the nine months ended September 30, 2008, business segment
results were
as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A Africa Asia Corporate
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------
Statement of
Operations:
Revenues 42,486 37,351 - - 6,540 86,377
----------------------------------------------------------------------------
Expenses
Operating expenses 33,708 33,953 - - 4,469 72,130
Sales royalties
and capital taxes 2,369 - - - 101 2,470
Mineral property
exploration 11,329 228 2,465 3,839 173 18,034
General and
administrative - - - - 13,116 13,116
----------------------------------------------------------------------------
47,406 34,181 2,465 3,839 17,859 105,750
----------------------------------------------------------------------------
Income (loss)
from operations (4,920) 3,170 (2,465) (3,839) (11,319) (19,373)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenues
- supplemental:
Uranium
concentrates 42,486 37,290 - - - 79,776
Environmental
services - - - - 3,929 3,929
Management fees
and commissions - - - - 2,611 2,611
Alternate feed
processing and
other - 61 - - - 61
----------------------------------------------------------------------------
42,486 37,351 - - 6,540 86,377
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-lived assets:
Property, plant
and equipment
Plant and
equipment 87,119 77,408 523 338 1,498 166,886
Mineral
properties 333,794 30,426 218,659 6,119 - 588,998
Intangibles - 438 - - 5,424 5,862
Goodwill 113,951 - - - - 113,951
----------------------------------------------------------------------------
534,864 108,272 219,182 6,457 6,922 875,697
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended September 30, 2008, business segment results
were as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A Africa Asia Corporate
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------
Statement of
Operations:
Revenues 10,135 24,489 - - 1,859 36,483
----------------------------------------------------------------------------
Expenses
Operating
expenses 9,471 23,466 - - 1,508 34,445
Sales royalties
and capital taxes 647 - - - 15 662
Mineral property
exploration 2,855 172 2,465 2,131 59 7,682
General and
administrative - - - - 4,322 4,322
----------------------------------------------------------------------------
12,973 23,638 2,465 2,131 5,904 47,111
----------------------------------------------------------------------------
Income (loss)
from operations (2,838) 851 (2,465) (2,131) (4,045) (10,628)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenues
- supplemental:
Uranium
concentrates 10,135 24,465 - - - 34,600
Environmental
services - - - - 1,434 1,434
Management fees
and commissions - - - - 425 425
Alternate feed
processing and
other - 24 - - - 24
----------------------------------------------------------------------------
10,135 24,489 - - 1,859 36,483
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended September 30, 2007, business segment results were
as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A Africa Asia Corporate
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------
Statement of
Operations:
Revenues 21,201 12,229 - - 6,509 39,939
----------------------------------------------------------------------------
Expenses
Operating expenses 18,351 6,537 - - 4,018 28,906
Sales royalties
and capital taxes 1,438 - - - 65 1,503
Mineral property
exploration 13,441 119 - 3,177 177 16,914
General and
administrative - - - - 9,598 9,598
----------------------------------------------------------------------------
33,230 6,656 - 3,177 13,858 56,921
----------------------------------------------------------------------------
Income (loss)
from operations (12,029) 5,573 - (3,177) (7,349) (16,982)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenues
- supplemental:
Uranium
concentrates 21,201 9,750 - - - 30,951
Environmental
services - - - - 3,391 3,391
Management fees
and commissions - - - - 3,118 3,118
Alternate feed
processing and
other - 2,479 - - - 2,479
----------------------------------------------------------------------------
21,201 12,229 - - 6,509 39,939
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-lived assets:
Property, plant
and equipment
Plant and
equipment 83,475 22,110 188 73 1,911 107,757
Mineral
properties 370,386 15,454 224,579 1,238 - 611,657
Intangibles - 500 - - 6,695 7,195
Goodwill 121,894 - - - - 121,894
----------------------------------------------------------------------------
575,755 38,064 224,767 1,311 8,606 848,503
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended September 30, 2007, business segment results
were as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A Africa Asia Corporate
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------
Statement of
Operations:
Revenues 7,395 68 - - 1,948 9,411
Expenses
Operating
expenses 6,060 1,584 - - 1,562 9,206
Sales royalties
and capital taxes 501 - - - 21 522
Mineral property
exploration 5,547 119 - 2,655 64 8,385
General and
administrative - - - - 3,138 3,138
----------------------------------------------------------------------------
12,108 1,703 - 2,655 4,785 21,251
----------------------------------------------------------------------------
Income (loss)
from operations (4,713) (1,635) - (2,655) (2,837) (11,840)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenues
- supplemental:
Uranium
concentrates 7,395 - - - - 7,395
Environmental
services - - - - 1,443 1,443
Management fees
and commissions - - - - 505 505
Alternate feed
processing and
other - 68 - - - 68
----------------------------------------------------------------------------
7,395 68 - - 1,948 9,411
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Major Customers
The Company's business is such that, at any given time, it sells
its uranium and vanadium concentrates to and enters into process
milling arrangements and other services with a relatively small
number of customers. In the nine months ended September 30, 2008,
three customers accounted for approximately 73% of total
revenues.
20. RELATED PARTY TRANSACTIONS
Uranium Participation Corporation
The Company is a party to a management services agreement with
UPC. Under the terms of the agreement, the Company will receive the
following fees from UPC: a) a commission of 1.5% of the gross value
of any purchases or sales of uranium completed at the request of
the Board of Directors of UPC; b) a minimum annual management fee
of CDN$400,000 (plus reasonable out-of-pocket expenses) plus an
additional fee of 0.3% per annum based upon UPC's net asset value
between CDN$100,000,000 and CDN$200,000,000 and 0.2% per annum
based upon UPC's net asset value in excess of CDN$200,000,000; c) a
fee of CDN$200,000 upon the completion of each equity financing
where proceeds to UPC exceed CDN$20,000,000; d) a fee of
CDN$200,000 for each transaction or arrangement (other than the
purchase or sale of uranium) of business where the gross value of
such transaction exceeds CDN$20,000,000 ("an initiative"); e) an
annual fee up to a maximum of CDN$200,000, at the discretion of the
Board of Directors of UPC, for on-going maintenance or work
associated with an initiative; and f) a fee equal to 1.5% of the
gross value of any uranium held by UPC prior to the completion of
any acquisition of at least 90% of the common shares of UPC.
In accordance with the management services agreement, all
uranium investments owned by UPC are held in accounts with
conversion facilities in the name of Denison Mines Inc. as manager
for and on behalf of UPC.
From time to time, the Company has also provided temporary
revolving credit facilities to UPC which generate interest and
standby fee income. No such facilities were in place for the nine
month period ending September 30, 2008.
In August 2008, the Company sold 50,000 pounds of U3O8 to UPC
for total consideration of $3,225,000.
The following transactions were incurred with UPC for the
periods noted:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30 September 30 September 30 September 30
(in thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Fees earned included
in revenue:
Uranium Sales $ 3,225 $ - $ 3,225 $ 9,750
Management fees,
including out-of-
pocket expenses 377 466 1,378 1,656
Commission fees
on purchase and
sale of uranium 48 39 1,233 1,462
Fees earned included
in other income:
Loan interest
under credit
facility - 6 - 197
Standby fee under
credit facility - - - 9
----------------------------------------------------------------------------
$ 3,650 $ 511 $ 5,836 $ 13,074
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30, 2008, accounts receivable includes $196,000 due
from UPC with respect to the fees indicated above.
Other
During the nine months ended September 30, 2008, the Company
incurred management and administrative service fees of $142,000
(September 2007: $147,000) with a company owned by the Chairman of
the Company which provides corporate development, office premises,
secretarial and other services in Vancouver at a rate of CDN$15,000
per month plus expenses. At September 30, 2008, no amounts were due
to this company.
21. CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
Capital Management
The Company's capital includes debt and shareholder's equity.
The Company's primary objective with respect to its capital
management is to ensure that it has sufficient capital to maintain
its ongoing operations, to provide returns for shareholders and
benefits for other stakeholders and to pursue growth opportunities.
As at September 30, 2008, the Company is not subject to externally
imposed capital requirements (other than the financial covenants
relating to the revolving credit facility) and there has been no
change with respect to the overall capital risk management
strategy.
Fair Values of Financial Instruments
The Company examines the various financial instrument risks to
which it is exposed and assesses the impact and likelihood of those
risks. These risks may include credit risk, liquidity risk,
currency risk, interest rate risk and price risk.
(a) Credit Risk
The Company's credit risk is related to trade receivables in the
ordinary course of business. The Company sells uranium exclusively
to large organizations with strong credit ratings and the balance
of trade receivables owed to the Company in the ordinary course of
business is not significant. Therefore, the Company is not exposed
to significant credit risk and overall the Company's credit risk
has not changed significantly from the prior year.
(b) Liquidity Risk
The Company has in place a planning and budgeting process to
help determine the funds required to support the Company's normal
operating requirements on an ongoing basis and its development
plans. The Company ensures that there is sufficient committed
capital to meet its short-term business requirements, taking into
account its anticipated cash flows from operations and its holdings
of cash and cash equivalents. The Company has in place a three year
term revolving credit facility in the amount of US$125,000,000 to
meet its cash flow needs (see note 11).
(c) Currency Risk
Financial instruments that impact the Company's operations or
other comprehensive income due to currency fluctuations include:
non United States dollar denominated cash and cash equivalents,
accounts receivable, accounts payable, long-term investments and
bank debt.
The sensitivity of the Company's operations and other
comprehensive income due to changes in the exchange rate between
the Canadian dollar and its Zambian kwacha functional currencies
and its United States dollar reporting currency as at September 30,
2008 is summarized below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in
Change in Comprehensive
(in thousands) Net Income (1) Net Income (1)
----------------------------------------------------------------------------
Canadian dollar
10% increase in value $ 423 $ 54,298
10% decrease in value $ (423) $ (54,298)
Zambian kwacha
10% increase in value $ (7,162) $ (7,162)
10% decrease in value $ 7,162 $ 7,162
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) In the above table, positive (negative) values represent increases
(decreases) in net income and comprehensive net income respectively.
(d) Interest Rate Risk
The Company is exposed to interest rate risk on its outstanding
borrowings and short-term investments. Presently, all of the
Company's outstanding borrowings are at floating interest rates.
The Company monitors its exposure to interest rates and has not
entered into any derivative contracts to manage this risk. The
weighted average interest rate paid by the Company during the nine
months ending September 30, 2008 on its outstanding borrowings was
4.44%.
An increase in interest rates of 100 basis points (1 percent)
would have increased the amount of interest expense recorded during
the nine months by approximately $312,000.
(e) Price Risk
The Company is exposed to price risk on the commodities which it
produces and sells. The Company is exposed to equity price risk as
a result of holding long-term investments in other exploration and
mining companies. The Company does not actively trade these
investments.
The sensitivity analyses below have been determined based on the
exposure to commodity price risk and equity price risk at September
30, 2008:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in
Change in Comprehensive
(in thousands) Net Income (1) Net Income (1)
----------------------------------------------------------------------------
Commodity price risk
10% increase in uranium prices(2) $ 3,884 $ 3,884
10% decrease in uranium prices(2) $ (3,884) $ (3,884)
Equity price risk
10% increase in equity prices $ - $ 2,104
10% decrease in equity prices $ - $ (2,104)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) In the above table, positive (negative) values represent increases
(decreases) in net income and comprehensive net income respectively.
(2) The Company is exposed to fluctuations in both the spot price and
long-term price of uranium as a result of the various pricing formulas
in the uranium contracts. The above sensitivity analysis is prepared
using the 9 month average actual realized price and adjusting the
uranium pricing formulas for a 10% increase or decrease in spot and
long-term prices as applicable.
(f) Fair Value Estimation
The fair value of financial instruments which trade in active
markets (such as available-for-sale securities) is based on quoted
market prices at the balance sheet date. The quoted marked price
used to financial assets held by the Company is the current bid
price.
22. INCOME TAXES
For the nine months ended September 30, 2008, the Company has
provided for current tax recovery of $2,342,000 and for future tax
expense of $6,790,000.
In March, 2008, the Zambian government enacted legislation which
increased the income tax rate for mining companies from 25% to 30%.
Accordingly, the Company recorded a future tax expense of
$10,740,000 in the period to adjust the future income tax liability
associated with its Zambian assets. This amount has been partially
offset by the recognition of previously unrecognized Canadian tax
assets of $3,700,000.
23. COMMITMENTS AND CONTINGENCIES
General Legal Matters
The Company is involved, from time to time, in various other
legal actions and claims in the ordinary course of business. In the
opinion of management, the aggregate amount of any potential
liability is not expected to have a material adverse effect on the
Company's financial position or results.
Third Party Indemnities
The Company has agreed to indemnify Calfrac Well Services
against certain specified future liabilities it may incur related
to the assets or liabilities assumed by Calfrac on March 8,
2004.
Contacts: Denison Mines Corp. E. Peter Farmer Chief Executive
Officer (416) 979-1991 Extension 231 Denison Mines Corp. Ron
Hochstein President and Chief Operating Officer (416) 979-1991
Extension 232 Denison Mines Corp. James R. Anderson Executive Vice
President and Chief Financial Officer (416) 979-1991 Extension 372
(416) 979-5893 (FAX) Website: www.denisonmines.com
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