Blueprint
MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
This
Management’s Discussion and Analysis (‘MD&A’)
of Denison Mines Corp. and its subsidiary companies and joint
arrangements (collectively, ‘Denison’ or the
‘Company’) provides a detailed analysis of the
Company’s business and compares its financial results with
those of the previous year. This MD&A is dated as of March 8,
2018 and should be read in conjunction with the Company’s
audited consolidated financial statements and related notes for the
year ended December 31, 2017. The audited consolidated financial
statements are prepared in accordance with International Financial
Reporting Standards (‘IFRS’) as issued by the
International Accounting Standards Board (‘IASB’). All
dollar amounts are expressed in U.S. dollars, unless otherwise
noted.
Additional
information about Denison, including the Company’s press
releases, quarterly and annual reports, Annual Information Form and
Form 40-F is available through the Company’s filings with the
securities regulatory authorities in Canada at www.sedar.com
(‘SEDAR’) and the United States at
www.sec.gov/edgar.shtml (‘EDGAR’).
MANAGEMENT’S DISCUSSION
& ANALYSIS
|
■
Completed a highly successful 2017 exploration and definition
drilling program at Wheeler River
During
2017, Denison completed a total of 43,956 metres of drilling in 90
holes at Wheeler River, with work focused at or near the Gryphon
deposit during the summer and the winter drilling programs. To
reduce drilling meterage, 77 of the 90 holes were completed as
subsurface ‘daughter’ holes which were drilled as
off-cuts from surface ‘parent’ holes, and a directional
drilling method was employed to ensure drilling accuracy.
Highlights from the 2017 drilling program included:
Expansion of mineralization ahead of the updated Gryphon deposit
mineral resource estimate
During
2017, Gryphon mineralization was expanded in numerous areas by
infill and step-out drilling on an approximate 25 x 25 meter
spacing, including: 1) expansion of high-grade mineralization
within the D series lenses; 2) discovery and expansion of the E
series lenses both at the unconformity and within the upper
basement; and 3) expansion of the A and B series lenses both up-dip
and down-dip.
Completion of the definition drilling program at the Gryphon
Deposit
In the
fourth quarter of 2017, the Company successfully completed the
definition drilling program on the Gryphon deposit’s A, B and
C series mineralized lenses, with the objective of increasing the
confidence of the previously estimated mineral resources from an
inferred to indicated level. The definition drilling program, which
commenced in the summer of 2016, included a total of 42 infill and
delineation drill holes to complete an approximate 25 x 25 metre
drill spacing.
■
Completed an updated mineral resource estimate for Wheeler
River’s Gryphon Deposit
On January 31, 2018, Denison
announced an updated mineral resource estimate for the Gryphon
deposit, which included, above a cut-off grade of 0.2%
U3O8, 61.9 million
pounds of U3O8 (1,643,000 tonnes
at 1.71% U3O8) in Indicated
Mineral Resources, plus 1.9 million pounds of U3O8 (73,000 tonnes at
1.18% U3O8) in Inferred
Mineral Resources. With this update to the resources estimated for
the Gryphon deposit, the combined Indicated Mineral Resources
estimated for the Wheeler River project increased by 88% to 132.1
million pounds U3O8, which will be
used to support the Pre-Feasibility Study (‘PFS’),
initiated for the project in July 2016, and expected to be
completed during 2018. Following the update, Wheeler River retained
and improved its standing as the largest undeveloped high-grade
uranium project in the infrastructure rich eastern portion of the
Athabasca Basin.
■
Discovered the high-grade, basement-hosted, Huskie Zone on the
Waterbury Lake property
During
the summer 2017 drilling program at Waterbury Lake, Denison
discovered high-grade, basement-hosted mineralization located
approximately 1.5 kilometres to the northeast of the
property’s J Zone uranium deposit. The summer program
included nine drill holes totaling 3,722 metres. Of the eight drill
holes designed to test for basement-hosted mineralization, seven
holes intersected significant mineralization, including 9.1%
U3O8 over 3.7 metres
(drill hole WAT17-446A), 1.7% U3O8 over 7.5 metres
(drill hole WAT17-449) and 1.5% U3O8 over 4.5 metres;
(drill hole WAT17-450A). The Huskie zone has been defined over a
strike length of 100 metres, the extent of the 2017 drilling, and
remains open in all directions.
■
Increased Ownership of Wheeler River Project to
63.3%
In January 2017, the Company executed an agreement
with the partners of the Wheeler River Joint Venture
(‘WRJV’) that will result in an increase in Denison's
ownership of the Wheeler River project, up to approximately 66% by
the end of 2018. Under this agreement, Denison is funding 50% of
Cameco Corp.’s (‘Cameco’) ordinary share (30%) of
joint venture expenses in 2017 and 2018. On January 31,
2018, Denison announced it had increased its interest in the
Wheeler River project, based on spending on the project during
2017, from 60% to 63.3% in accordance with this
agreement.
■
Closed non-dilutive financing for CAD$43.5 million to fund future
project development activities
In the
first quarter of 2017, Denison announced and closed a financing
arrangement for gross proceeds of CAD$43.5 million, which has the
effect of monetizing Denison’s future share of the toll
milling revenue earned by the McClean Lake mill from the processing
of ore from the Cigar Lake mine through the combination of a
limited recourse loan and a streaming arrangement. Through this
transaction, Denison retains its 22.5% ownership of the McClean
Lake Joint Venture (‘MLJV’), but has de-risked its
income from certain toll milling revenue, as the Company is not
providing any warranty to the future rate of production at the
Cigar Lake mine or the McClean Lake mill. The proceeds from the
financing are expected to fund the Company’s project
development costs for Wheeler River towards the completion of a
Feasibility Study and ultimately project financing.
MANAGEMENT’S DISCUSSION &
ANALYSIS
■
Obtained financing for the Company’s 2018 Canadian
exploration activities
In
March 2017, the Company completed a private placement of 18,337,000
common shares for gross proceeds of $14,806,000 (CAD$20,200,290).
The financing included (1) a ‘Common Share’ offering of
5,790,000 common shares of Denison at a price of CAD$0.95 per share
for gross proceeds of CAD$5,500,500; (2) a ‘Tranche A Flow
Through’ offering of 8,482,000 flow through shares at a price
of CAD$1.12 per share for gross proceeds of $9,499,840; and (3) a
‘Tranche B Flow Through’ offering of 4,065,000 flow
through shares at a price of CAD$1.23 per share for gross proceeds
of CAD$4,999,950. The proceeds from the flow through tranches of
the financing will be used to fund Canadian exploration activities
through to the end of 2018.
■
Denison Environmental Services (‘DES’) renewed its
cornerstone environmental services contract
In July
2017, DES entered into a new two-year services agreement with Rio
Algom Limited, a subsidiary of BHP Billiton Limited
(‘BHP’) for the management and operation of nine
decommissioned mine sites in Ontario and Quebec.
Denison
was formed under the laws of Ontario and is a reporting issuer in
all Canadian provinces. Denison’s common shares are listed on
the Toronto Stock Exchange (the ‘TSX’) under the symbol
‘DML’ and on the NYSE American (formerly NYSE MKT)
exchange under the symbol ‘DNN’.
Denison
is a uranium exploration and development company with interests
focused in the Athabasca Basin region of northern Saskatchewan,
Canada. In addition to its 63.3% owned Wheeler River project, which
hosts the high grade Phoenix and Gryphon uranium deposits,
Denison's exploration portfolio consists of numerous projects
covering approximately 351,000 hectares in the Athabasca Basin
region, including 331,000 hectares in the infrastructure rich
eastern portion of the Athabasca Basin. Denison's interests in
Saskatchewan also include a 22.5% ownership interest in the MLJV,
which includes several uranium deposits and the McClean Lake
uranium mill, which is currently processing ore from the Cigar Lake
mine under a toll milling agreement, plus a 25.17% interest in the
Midwest deposit and a 64.22% interest in the J Zone deposit and
newly discovered Huskie zone on the Waterbury Lake property. Both
the Midwest and J Zone deposits, as well as the Huskie zone, are
located within 20 kilometres of the McClean Lake mill.
Denison
is engaged in mine decommissioning and environmental services
through its DES division, which manages Denison’s Elliot Lake
reclamation projects and provides post-closure mine and maintenance
services to a variety of industry and government
clients.
Denison
is also the manager of Uranium Participation Corporation
(‘UPC’), a publicly traded company listed on the TSX
under the symbol ‘U’, which invests in uranium oxide in
concentrates (‘U3O8’) and
uranium hexafluoride (‘UF6’).
STRATEGY
Denison’s
strategy is focused on leveraging its uniquely diversified asset
base to position the Company to take advantage of the strong
long-term fundamentals of the uranium market. The Company has built
a portfolio of strategic uranium deposits, properties, and
investments highlighted by a controlling interest in the Wheeler
River project and a minority interest in an operating and licensed
uranium milling facility, both located in the infrastructure rich
eastern portion of the Athabasca Basin region. While active in
exploring for new uranium discoveries in the region,
Denison’s present focus is on advancing the Wheeler River
project to a development decision, with the potential to become the
next large scale uranium producer in Canada. With a shortage of low
cost uranium development projects in the global project pipeline,
Denison is positioned to offer shareholders exposure to value
creation through both the development of a potentially top tier
asset, as well as a rising uranium price in future
years.
URANIUM INDUSTRY OVERVIEW
In
2017, the uranium industry weathered yet another difficult and
somewhat volatile year. An oversupplied spot market continued to
put downward pressure on the spot price of U3O8, despite the
announcement of various production curtailments from the
world’s largest uranium producers. After reaching a 12-year
low near $18.00 per pound U3O8 in December 2016,
the spot price started 2017 at $20.25 per pound U3O8, traded north of
$26.00 per pound U3O8 in the first
quarter of the year, retreated back to the $20.00 per pound
U3O8 level in the
third quarter, then rallied in the fourth quarter to peak at $26.50
per pound U3O8 in early December
2017. After a volatile year, the spot price closed 2017 at $23.75
per pound U3O8 –
representing an increase of over 17% for the year.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Industry insiders
have pointed to multiple reasons for the volatility in spot prices
during 2017 – including negative demand side stories from
nuclear heavy-weight countries like the United States, France and
South Korea, continued disappointment with the rate of nuclear
reactor restarts in Japan, the deferral of utility contracting
activity, and an abundance of secondary supplies entering the
market (including underfeeding from under-utilized enrichment
plants). These negative stories were offset at various times during
the year by high profile production curtailments announced by
Cameco and National Atomic Company Kazatomprom
(‘Kazatomprom’). The oversupplied spot market has also
weighed on the long-term contract price of uranium, which has
fallen 30% over the past two years, from a price of $44.00 per
pound U3O8 at the beginning
of 2016 to $31.00 per pound U3O8 at the end of
2017. With only an estimated 75 million pounds U3O8 contracted during
2017 (approximately 30% of the annual contract volumes seen during
the 2005-2012 contracting cycle), there have been few opportunities
for the market to truly discover an appropriate long-term price for
uranium.
Low
prices and minimal contracting volumes seem illogical when
juxtaposed to statistics from the U.S. Energy Information
Administration and American Nuclear Society regarding the fact
that, on a net basis, more new nuclear power capacity was added to
the global electricity grid during 2015 and again in 2016 than in
any other year over the last 25 years. This view is bolstered by
the fact that a uranium price in the low $20.00 per pound range
puts pressure on even the lowest cost producing uranium mines in
the world to turn a profit on an all-in cost basis. With demand
forecasts for uranium increasing steadily through 2030, meaningful
new nuclear capacity is expected to come onto the grid while the
uranium mining production pipeline that has been stagnated by
several years of low uranium prices. Uranium prices at current
levels fail to incentivize the majority of undeveloped uranium
projects towards construction, and, as a result, logic would
suggest that prices should be on the rise. Underpinning that logic,
however, is the assumption that growing demand in the future
translates into increased buying today, and that an oversupplied
spot market, and historically low prices, will be fixed by
opportunistic buying for long-term utility needs.
Volumes
in the spot market during 2017 were sporadic, varying week to week
with a total volume of approximately 44 million pounds
U3O8
being traded during the year. With buyers staying on the sidelines,
sellers have simply outnumbered buyers in the market and prices
have battled downward pressure all year. This dynamic, combined
with the reality of higher priced long term contracts falling off
in the not too distant future, led to the announcement of
significant production curtailments in 2017. The most notable of
these curtailments being Cameco’s announcement regarding the
shut-down of the McArthur Mine for 10 months (or longer, depending
on market conditions). The McArthur River mine is the largest and
highest grade uranium mine in the world. The announced curtailment
represents the removal of approximately 15 million pounds
U3O8 from the market
in 2018, and up to 18 million pounds U3O8 in future years.
Kazatomprom, the world’s largest uranium producer, also
declared that it would exercise restraint in 2017 and future years,
having announced in early 2017 that it would cut production by 10%
in 2017. Later in 2017, Kazatomprom also confirmed that it would
constrain production levels for a further 3 years, though the end
of 2020.
As a
result of these and other production curtailments, various analysts
are now expecting that the uranium market could swing to a deficit
position in the near future, which would help to mop up excess
inventories that could otherwise leak into the market as secondary
supplies. For a price recovery to be sustained, however, utility
buying must resume and contracting volumes must increase as
utilities work towards securing approximately 1.2 billion pounds
U3O8 in estimated
uncovered uranium requirements for the period of 2018 to
2030.
Much of
the uncovered future demand is estimated to come from non-U.S.
utilities, as growth in nuclear energy is expected to be driven by
increasing nuclear generating capacities in Asia – primarily
from China and India. According to the World Nuclear Association
(‘WNA’), as of February 1, 2018, China had 38 operable
nuclear reactors capable of producing 34.6 gigawatts of
electricity. A further 20 reactors are under construction and an
additional 182 reactors are either planned or proposed. Ux
Consulting Company, LLC (‘UxC’) estimates that 99
reactors are expected to be operable and capable of producing over
98.5 gigawatts of electricity in China by 2030. To achieve this
level of production, China’s fleet of nuclear reactors will
have to increase by between 5 and 6 reactors each year for the next
12 years. The WNA is projecting a similar growth profile for India,
where 22 reactors were operable as of February 1, 2018, capable of
producing 6.2 gigawatts of power. Taken together, 65 reactors are
either under construction, planned or proposed in India. UxC
estimates that India could have over 15 gigawatts of nuclear energy
operable by 2030, representing over 2 times as much power capacity
as is currently available from nuclear. To achieve this level of
production, India’s fleet of nuclear reactors will have to
increase by one additional reactor each year over the next 12
years.
With
few economic sources of new supply able to advance through the
project development pipeline in this market, and the potential for
additional production curtailments as high-priced contracts at
various high-cost operations are expected to drop off in the coming
years, a significant utility contracting cycle is expected to lead
to the realization that current uranium prices are well below the
level required to incentivize sufficient new sources of primary
supply into the market. This could ultimately lead to a sustained
market of rising prices, as buyers are forced to bid up the price
to secure available supplies of uranium or incentivize new sources
of supply into the market.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
SELECTED ANNUAL FINANCIAL INFORMATION
|
(in thousands, except for per share amounts)
|
|
|
|
Year Ended
December 31,
2017
|
|
Year Ended
December 31,
2016
|
|
Year Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
$
|
11,085
|
$
|
13,833
|
$
|
12,670
|
|
Exploration
and evaluation
|
|
|
$
|
(12,834)
|
$
|
(11,196)
|
$
|
(13,439)
|
|
Impairment
reversal (expense)
|
|
|
$
|
246
|
$
|
(2,320)
|
$
|
(2,603)
|
|
Net
loss
|
|
|
$
|
(14,087)
|
$
|
(11,699)
|
$
|
(16,717)
|
|
Basic
and diluted loss per share
|
$
|
(0.03)
|
$
|
(0.02)
|
$
|
(0.03)
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(81)
|
$
|
(5,644)
|
$
|
(34,843)
|
|
Basic
and diluted loss per share
|
$
|
0.0
|
$
|
(0.01)
|
$
|
(0.07)
|
|
(in thousands)
|
|
|
|
As at
December 31,
2017
|
|
As at
December 31,
2016
|
|
As at
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
$
|
2,898
|
$
|
11,838
|
$
|
5,367
|
|
Investments
in debt instruments (GICs)
|
|
|
$
|
30,136
|
$
|
-
|
$
|
7,282
|
|
Cash,
cash equivalents and GICs
|
|
|
$
|
33,034
|
$
|
11,838
|
$
|
12,649
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
$
|
29,140
|
$
|
9,853
|
$
|
12,772
|
|
Property,
plant and equipment
|
$
|
198,480
|
$
|
187,982
|
$
|
188,250
|
|
Total
assets
|
$
|
260,068
|
$
|
217,423
|
$
|
212,758
|
|
Total
long-term liabilities
|
$
|
65,121
|
$
|
37,452
|
$
|
38,125
|
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
(in
thousands, except for per share amounts)
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
3,156
|
$
|
2,717
|
$
|
2,611
|
$
|
2,601
|
|
Net
loss
|
$
|
(1,241)
|
$
|
(5,777)
|
$
|
(6,423)
|
$
|
(646)
|
|
Basic
and diluted loss per share
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
-
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
-
|
$
|
-
|
$
|
(81)
|
$
|
-
|
|
Basic
and diluted loss per share
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
MANAGEMENT’S DISCUSSION & ANALYSIS
|
|
|
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
(in
thousands, except for per share amounts)
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
3,351
|
$
|
3,489
|
$
|
3,663
|
$
|
3,330
|
|
Net
loss
|
$
|
(916)
|
$
|
(2,506)
|
$
|
(3,832)
|
$
|
(4,445)
|
|
Basic
and diluted loss per share
|
$
|
-
|
$
|
-
|
$
|
(0.01)
|
$
|
(0.01)
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
Net
profit (loss)
|
$
|
(9,082)
|
$
|
9,050
|
$
|
(450)
|
$
|
(5,162)
|
|
Basic
and diluted profit (loss) per share
|
$
|
(0.01)
|
$
|
0.01
|
$
|
-
|
$
|
(0.01)
|
Significant items causing variations in quarterly
results
●
The Company’s
toll milling revenues over the last several quarters have
fluctuated due to the timing of uranium processing at the McClean
Lake mill, as well as the impact of the toll milling financing
transaction which closed in the first quarter of 2017.
●
Revenues from
Denison Environmental Services fluctuate due to the timing of
projects, which vary throughout the year in the normal course of
business.
●
Exploration
expenses are generally largest in first and third quarters, due to
the timing of the winter and summer exploration programs in
Saskatchewan.
●
The Company’s
results are also impacted by other non-recurring events arising
from its ongoing activities.
RESULTS OF CONTINUING OPERATIONS
REVENUES
McClean Lake Uranium Mill
McClean
Lake is located on the eastern edge of the Athabasca Basin in
northern Saskatchewan, approximately 750 kilometres north of
Saskatoon. Denison holds a 22.5% ownership interest in the MLJV and
the McClean Lake uranium mill, one of the world’s largest
uranium processing facilities, which is currently processing ore
from the Cigar Lake mine under a toll milling agreement. The MLJV
is a joint venture between Orano Canada Inc. (formerly known as
AREVA Resources Canada) (‘Orano Canada’) with a 70%
interest, Denison with a 22.5% interest, and OURD (Canada) Co. Ltd.
with a 7.5% interest.
On
February 13, 2017, Denison closed an arrangement with Anglo Pacific
Group PLC and one of its wholly owned subsidiaries (the ‘APG
Transaction’) under which Denison received an upfront payment
of $32,860,000 (CAD$43,500,000) in exchange for its right to
receive future toll milling cash receipts from the MLJV under the
current toll milling agreement with the Cigar Lake Joint Venture
(‘CLJV’) from July 1, 2016 onwards.
The APG
Transaction represents a contractual obligation of Denison to
forward to APG any cash proceeds of toll milling revenue earned by
the Company after July 1, 2016 related to the processing of the
specified Cigar Lake ore through the McClean Lake mill, and as
such, the upfront payment has been accounted for as deferred
revenue. The Company has reflected payments made to APG of
$2,659,000 (CAD$3,520,000), representing the Cigar Lake toll
milling cash receipts received by Denison in respect of toll
milling activity for the period from July 1, 2016 through January
31, 2017, as a reduction of the initial upfront amount received,
reducing the initial deferred revenue balance to $30,201,000
(CAD$39,980,000).
During
2017, the McClean Lake mill continued to process ore received from
the Cigar Lake mine and packaged approximately 18.0 million pounds
U3O8 for the CLJV
(2016 – 17.3 million pounds U3O8). In 2017, the
Company recognized total toll milling revenue of $2,558,000 (2016
– $4,598,000). The Company’s share of toll milling
revenue for January 2017 of $444,000, prior to the closing of the
APG Transaction, was recognized as toll milling revenue in the
first quarter of 2017. Following the closing of the APG
Transaction, CAD$4,770,000 in toll milling cash receipts were
received from the MLJV, and the Company recognized toll milling
revenue from the draw-down of deferred revenue of
$2,114,000.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Denison Environmental Services
Mine
decommissioning and environmental services are provided through
Denison’s DES division – providing long-term care and
maintenance for closed mine sites since 1997. With offices in
Elliot Lake and Sudbury, Ontario, the Yukon Territory and Quebec,
DES manages Denison’s Elliot Lake reclamation projects and
provides post-closure mine care and maintenance services to various
customers.
Revenue
from DES during 2017 was $7,130,000 (2016 - $7,751,000). DES
experienced a decrease in Canadian dollar revenues due to a
decrease in activity at certain care and maintenance sites,
slightly offset by a favourable fluctuation in foreign exchange
rates applicable on the translation of revenues earned in Canadian
dollars.
Management Services Agreement with UPC
Denison
provides general administrative and management services to UPC.
Management fees and commissions earned by the Company provide
Denison with a source of cash flow to partly offset corporate
administrative expenditures incurred by the Company.
During
2017, revenue from the Company’s management contract with UPC
was $1,397,000 (2016 - $1,484,000). The decrease in revenues during
2017 was predominantly due to a reduction in the management fees
earned based on UPC’s monthly net asset value. UPC’s
balance sheet consists primarily of uranium held either in the form
of U3O8 or UF6, which is
accounted for at fair value. The fair value of uranium holdings
reduced during the year, due to a decline in uranium spot prices.
The Company also earns a commission of 1% of the gross value of
uranium purchases. The decrease in management fees was partly
offset by an increase in commission fees earned on uranium
purchases entered into by UPC in 2017.
OPERATING EXPENSES
Canada Mining
Operating
expenses of the Canadian mining segment include depreciation and
development costs, as well as certain adjustments to the estimates
of future reclamation liabilities at McClean Lake, Midwest and
Elliot Lake, if applicable.
Operating
expenses in 2017 were $4,088,000 (2016 - $3,665,000).
In
2017, operating expenses included depreciation of the McClean Lake
mill of $2,989,000 (2016 - $2,411,000), as a result of processing
approximately 18.0 million pounds U3O8 for the CLJV
(2016 - 17.3 million pounds). In 2017, operating expenses also
included $1,042,000 in development and other operating costs
related to the MLJV (2016 – $782,000), predominantly due to
the advancement of the Surface Access Borehole Resource Extraction
(‘SABRE’) mining technology, as part of a multi-year
test mining program operated by Orano Canada within the
MLJV.
In
2017, the Company also recorded operating expenses related to an
increase in the estimate of reclamation liabilities at Elliot Lake
of $56,000 (2016 - $461,000) reflecting the impact of increased
labour cost estimates. In 2016, the increase in the reclamation
liability was due to an increase in labour cost estimates and an
increase in the discount rate. Refer to Contractual Obligations and
Contingencies section for further detail.
Environmental Services
Operating
expenses during 2017 totaled $6,357,000 (2016 - $6,669,000). The
expenses relate primarily to care and maintenance and consulting
services provided to clients, and include labour and other costs.
The decline in operating expenses in 2017, compared to 2016, is
predominantly due to the decline in care and maintenance and
consulting activities at certain locations.
CANADIAN MINERAL PROPERTY EXPLORATION & EVALUATION
During
2017, the Company continued to focus on its significant portfolio
of projects in the eastern portion of the Athabasca Basin region in
Saskatchewan. Denison’s share of exploration and evaluation
expenditures in 2017 was $12,834,000 (CAD$16,643,000) (2016 –
$11,196,000 (CAD$14,917,000)). Exploration spending in Canada is
seasonal, with spending higher during the winter exploration season
(January to mid-April) and summer exploration season (June to
mid-October) in the Athabasca Basin. During 2017, the
Company’s exploration and evaluation expenditures increased
primarily due to a higher level of activity at the Wheeler River
Project and an unfavourable fluctuation in foreign exchange rates
applicable to the translation of expenses incurred in Canadian
dollars, offset by reduced activities at certain exploration
pipeline properties.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
The following table
summarizes the activities that were completed during
2017.
|
EXPLORATION & EVALUATION ACTIVITIES
|
|
Property
|
Denison’s ownership
|
Drilling in metres (m)
|
Other activities
|
|
Wheeler
River
|
63.3%(1)
|
43,956
(90 holes(5))
|
PFS
activities
|
|
|
Murphy
Lake
|
82.58%
|
3,433
(9 holes)
|
-
|
|
|
Waterbury
Lake
|
64.22%(2)
|
8,525
(18 holes)
|
-
|
|
|
Crawford
Lake
|
100%
|
2,587
(5 holes)
|
Geophysical
surveys
|
|
|
Hook-Carter
|
80%(3)
|
-
|
Geophysical
surveys
|
|
|
Moon
Lake South
|
51%(4)
|
-
|
Geophysical
surveys
|
|
|
South
Dufferin
|
100%
|
-
|
Geophysical
surveys
|
|
|
Bachman
Lake
|
100%
|
-
|
Geophysical
surveys
|
|
|
Wolly
|
21.89%
|
5,029
(17 holes)
|
-
|
|
|
McClean
Lake
|
22.5%
|
5,870
(20 holes)
|
-
|
|
|
Total
|
|
69,400 (159 holes)
|
|
Notes:
1
Denison is expected to increase
its ownership of the Wheeler River project to approximately 66% by
the end of 2018.
2
The
Company earned an additional 0.62% interest in the Waterbury Lake
property effective May 31, 2017 and an additional 0.59% interest
effective August 31, 2017 Refer to RELATED PARTY TRANSACTIONS below
for further details.
3
The
Company acquired an 80% ownership in the project in November 2016
from ALX Uranium Corp. (‘ALX’) and has agreed to fund
ALX’s share of the first CAD$12.0 million in expenditures on
the project.
4
In
accordance with the January 2016 letter agreement with CanAlaska
Uranium Ltd., Denison earned a 51% interest in the Moon Lake South
claim in April 2017.
5
77 holes were completed as subsurface
‘daughter’ holes completed from part way down surface
‘parent’ holes.
The
Company’s land position in the Athabasca Basin, as of
December 31, 2017 is illustrated below. The Company’s
Athabasca land package increased during the fourth quarter from
346,761 hectares (244 claims) to 351,365 hectares (267 claims)
owing to selective staking contiguous with, or proximal to,
Denison’s existing claims.
MANAGEMENT’S DISCUSSION
& ANALYSIS
|
Project Highlights:
●
Largest undeveloped
high-grade uranium project in the eastern Athabasca
On January 31, 2018 Denison
announced an updated mineral resource estimate for the Gryphon
deposit following drilling results from a further 144 drill holes
completed during 2016 and 2017. The updated mineral resource
estimate for Gryphon, above a cut-off grade of 0.2% U3O8, includes 61.9
million pounds of U3O8 (1,643,000 tonnes
at 1.71% U3O8) in Indicated
Mineral Resources, and 1.9 million pounds of U3O8 (73,000 tonnes at
1.18% U3O8) in Inferred
Mineral Resources.
The Phoenix deposit, located
approximately three kilometres southeast of Gryphon, is estimated
to include Indicated Mineral Resources of 70.2 million pounds of
U3O8 above a cut-off
grade of 0.8% U3O8 (166,000 tonnes
at 19.1% U3O8), as disclosed
in the Preliminary Economic Assessment for the Wheeler River
Uranium Project, Saskatchewan, Canada dated March 31, 2016 and
prepared by Ken Reipas, P.Eng of SRK Consulting (Canada) Inc. (the
‘PEA’). With the update to the Gryphon deposit resource
estimate, the combined Indicated Mineral Resources estimated for
Wheeler River have increased by 88% to 132.1 million pounds
U3O8, which will be
used to support the PFS.
With the updated mineral resource
estimate for the property’s Gryphon deposit, the Wheeler
River project retains and improves its position as the largest
undeveloped high-grade uranium project in the eastern portion of
the Athabasca Basin region, in northern Saskatchewan.
●
Proximal to existing uranium
mining and milling infrastructure
The property is located in the
infrastructure rich eastern portion of the Athabasca Basin, which
is host to existing uranium mining and milling infrastructure,
including the 22.5% Denison owned McClean Lake mill. The Wheeler
River property lies alongside provincial highway 914 and a
provincial powerline.
●
Positive
preliminary project economics
On
April 4, 2016, Denison announced the results of its PEA for the
Wheeler River Project, which considers the potential economic merit
of co-developing the high-grade Gryphon and Phoenix deposits as a
single underground mining operation. The PEA was based on the
resources estimated at the Gryphon deposit in November 2015, and
returned a base case pre-tax Internal Rate of Return
(‘IRR’) of 20.4% based on the then current long term
contract price of uranium ($44.00 per pound U3O8). Denison's share
of initial capital expenditures (‘CAPEX’) in the PEA
was estimated to be CAD$336M (CAD$560M on 100% ownership basis)
based on its 60% ownership interest at that time. The PEA is
preliminary in nature, was based on Inferred Mineral Resources that
are considered at the time to be too speculative geologically to
have the economic considerations applied to them to allow them to
be categorized as mineral reserves, and there is no certainty that
the results from the PEA will be realized. The results of the
updated estimate of Indicated Mineral Resources for the project of
132.1 million pounds U3O8, have not been
included in the PEA, but will be used
to support the PFS.
●
Increasing
Denison ownership
As
previously announced on January 10, 2017, Denison entered into an
agreement with its Wheeler River Joint Venture partners, Cameco and
JCU (Canada) Exploration Company, Limited (‘JCU’), to
fund 75% of Joint Venture expenses in 2017 and 2018 (ordinarily
60%) in exchange for an increase in Denison's interest in the
project up to approximately 66%. Under the terms of the agreement,
Cameco is funding 50% of its ordinary 30% share in 2017 and 2018,
and JCU continues to fund based on its 10% interest in the project.
On January 31, 2018, Denison announced it had increased its
interest in the Wheeler River project during 2017 from 60% to 63.3%
in accordance with this agreement.
●
Significant
potential for resource growth
The
Gryphon deposit is a growing, high-grade uranium deposit that
belongs to a select group of large basement-hosted uranium deposits
in the eastern Athabasca Basin, which includes Cameco’s Eagle
Point mine and Millennium deposit, and Rio Tinto's Roughrider
deposit. The Gryphon deposit remains open in numerous areas with
significant potential for future resource growth. Priority target
areas include: (1) Along strike to the northeast of the E series
lenses, where both unconformity and basement potential exists; (2)
Down plunge of the A and B series lenses; (3) Along strike to the
northeast and southwest of the D series lenses; and (4) Within the
currently defined D series lenses, where additional high-grade
shoots may exist.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
In
addition, very little regional exploration has taken place on the
property in recent years, with drilling efforts focussed on Phoenix
and Gryphon, which were discovered in 2008 and 2014 respectively.
The property is host to numerous uranium-bearing lithostructural
corridors which are under- or unexplored and have the potential for
additional large, high-grade unconformity or basement hosted
deposits. Exploration drilling is warranted along these corridors
to follow-up on previous mineralized drill results, or to test
geophysical targets identified from past surveys.
The
Wheeler River property location and basement geology map is
provided below.
Evaluation Program
During
2017, Denison’s share of evaluation costs at Wheeler River
amounted to $1,737,000 (2016 - $847,000), which related to work on
a PFS and environmental activities.
MANAGEMENT’S DISCUSSION
& ANALYSIS
|
PFS Activities
In
2016, Denison announced the initiation of a PFS for the Wheeler
River project, including commencing a drilling program to increase
the level of confidence of the previously released inferred
resource estimate for the Gryphon deposit to an indicated level.
Refer to the Exploration Programs section for results of the infill
and delineation drill holes completed during the winter and summer
2017 programs. Engineering and environmental activities continued
during the year.
Engineering Activities
As part
of the PFS activities at Wheeler River to date, the Company
continued engineering data collection programs, advanced
metallurgical testing programs, investigated alternative mining
methods for the Phoenix deposit and carried out other engineering
activities.
Engineering data collection
Activities
in 2017 included geotechnical and hydrogeological data collection
and field studies initiated to assess ground and water conditions
in the mineralized zones and the surrounding host rock. The
geotechnical information will be used to guide the location of
underground development and the design of ground support systems
for both the shafts and the mine. This information is also expected
to be used in the production planning process, including the
determination of optimum stope sizes and mine production
sequencing. The hydrogeological information will be used to 1)
evaluate routine and potential non-routine water inflows to the
underground operation, 2) develop design criteria for ground
freezing applications, mine dewatering and water treatment plant
systems, and 3) understand potential interactions of the project
with the environment.
Metallurgical test program
The
advanced test program initiated in 2017 built upon the basic
metallurgical testing completed in 2014 and 2015, and focused on
the following:
●
Testing mill
performance at the extremes of potential impurity levels and ore
feed grades; and
●
Optimizing the
processing parameters for both the Gryphon and Phoenix deposits,
including grind size, leach residence time and recovery, and
reagent usage and consumption.
At
Phoenix, three composite samples were prepared for testing extreme
grades and impurities levels. Composite samples included low grade
(10.94% U3O8, 186ppm Mo and
345ppm As), medium grade (17.10% U3O8, 151ppm Mo and
334ppm As), and high grade (37.15% U3O8, 192ppm Mo and
438ppm As) samples.
The
results of this testing are summarized as follows:
●
Ore recovery is
sensitive to grind size. Testing was completed on grind sizes of
P100 at 212 microns, 300 microns and 425 microns;
●
Increased leaching
rates are achieved with finer grinds;
●
Similar recoveries
were achieved using coarser grinds by increasing free acid levels
and retention time;
●
In all cases, 99%
uranium extraction rates were achieved;
●
Finer grinds
allowed for uranium extraction rates of 99.5%;
●
In general, 6 to 10
hours retention time is required; and,
●
The addition of
ferric reagent is not required, due to sufficient presence of iron
in the ore.
Similarly
at Gryphon, three composite samples were prepared for testing
extreme grades and impurities levels. Composite samples included,
low grade (1.58% U3O8, 778ppm Mo and
29ppm As), medium grade (3.14% U3O8, 1010ppm Mo and
39ppm As) and high Grade (6.43% U3O8, 1115ppm Mo and
57ppm As).
The
results of this testing is summarized as follows:
●
Optimum grind size
was determined to be 212 microns;
●
Approximately
98-99% recovery of uranium was achieved with 12 hours of leach
residence time; and
●
Trials of
flocculants addition identified a product offering excellent
settling properties for the leached residues.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
Overall,
for all testing, the calcined yellowcake meets all ASTM C967-13
(Standard Specifications for Uranium Ore Concentrate) requirements.
Concentrations of key impurities (or deleterious elements),
including arsenic, are considered very low and are not expected to
cause challenges in mineral processing.
Phoenix alternate mining methods
The PEA
evaluated the use of a Jet Boring System (‘JBS’),
similar to that being used at the Cigar Lake mine, to mine the
Phoenix deposit. The results indicated that the method, while
economic, was capital intensive, with long lead times to
development, higher risk with technically challenging ground
conditions, and ultimately generated a lower operating margin than
the conventional mining methods evaluated for the Gryphon deposit.
After significant analysis and evaluation, utilizing a number of
specialized engineering providers, Denison identified several
potentially viable alternate mining methods. These methods have the
potential to result in a significant improvement in operating
economics for the Phoenix deposit, while reducing construction
capital, time to development, and technical risk. In the fourth
quarter of 2017, the company completed detailed evaluations of two
alternative mining methods, and the Company’s PFS activities
are expected to advance work on both methods.
Other engineering activities
Other
activities that were completed during 2017 included:
●
Twinned five
historic Phoenix drill holes to gather geotechnical and
hydrogeological data as well as fresh metallurgical samples for
laboratory testing.
●
Drilled a 600m
shaft pilot hole for the main production shaft at
Gryphon.
●
Collected basic
geotechnical information on approximately 50,000 metres of
exploration drilling.
●
Carried out
detailed evaluations (including site visits) and trade-off studies
to select the preferred shaft excavation method.
●
Continued water
treatment trade-off studies to select the preferred treatment
technology and water management strategy for the
project.
●
Retained Stantec
Consulting Inc. (‘Stantec’) and ENGCOMP Engineering and
Computing Professionals Inc. (‘ENGCOMP’) to lead and
author the PFS.
●
Retained Hatch Ltd
(‘Hatch’) for the mineral processing scope of the PFS,
which is expected to include the development of an appropriate
process design criteria for the recovery of uranium from the
Gryphon and Phoenix deposits, and to carry out a capacity review of
Denison's 22.5% owned McClean Lake mill to ultimately provide the
various mineral processing inputs into the overall PFS. In
completing this work, Hatch is expected to leverage its previous
experience with the McClean Lake mill facility.
●
Retained DES to
manage the on-going environmental baseline data collection and
regulatory aspects of the project, ultimately supporting the
federal and provincial environmental assessment processes. DES is
expected to leverage its experience working with the Canadian
Nuclear Safety Commission (‘CNSC’), as a uranium
facility operator for the Company's reclaimed uranium mine sites in
Elliot Lake, Ontario.
●
Continued
discussions with the Province for the construction of the Highway
914 extension. This 50km segment of highway is required to
transport Wheeler River ore to the McClean Lake mill.
Sustainability Activities
During
2017, the Company continued with the community consultation and
engagement process, ensuring the continuous engagement of
stakeholders.
The
Company also completed the collection of a full year of
environmental baseline data as part of an ongoing environmental
data collection program, to help characterize the existing
environment in the project area. This data will form the foundation
of the environmental impact assessment (‘EIA’) for the
project. The information will also be used in the design of various
aspects of the project, including the location and layout of site
infrastructure, the location for treated effluent discharge and
fresh water intake, and the designs of water treatment plants,
waste storage facilities, and other infrastructure interacting with
the environment. Programs in progress and/or completed during the
year included:
●
Aquatic
environment: Report preparation of the baseline data including
characterization of the lakes and streams near the project area,
with key aspects including water quality, water flow and water
levels, lake sediment quality, benthic invertebrate communities,
and fish communities;
●
Terrestrial
environment: Data collection and characterization of wildlife,
vegetation and soils surrounding the project area, including
ecological land classification, breeding bird surveys, ungulate
pellet counts, winter tracking surveys, aquatic furbearer shoreline
surveys, small mammal trapping, amphibian surveys, characterization
of terrain and soil types, vegetation and soil chemistry, and
vegetation;
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
●
Waste rock
geochemistry: Analysis of targeted core samples to determine acid
and metal leaching potential from waste rock. Additional kinetic
testing of the waste rock was initiated and continued;
●
Atmospheric
environment: Collection of air quality measurements to gather
information on pre-development atmospheric conditions;
and
●
Archaeological
analysis: Surveys were completed in the area with no significant
findings.
In
addition, specific environmental modelling programs were initiated
in 2017 to assess project interactions with the environment,
including modelling to assess potential water intake and effluent
discharge locations. This data will inform the PFS and help to
avoid the establishment of infrastructure in environmentally
sensitive areas.
Exploration Program
Denison’s
share of exploration costs at Wheeler River amounted to $7,240,000
during the winter and summer 2017 diamond drilling programs (2016 -
$4,802,000) for a total of 43,956 metres in 90 drill holes.
Drilling statistics for 2017 are provided in the table
below.
|
2017 DRILLING STATISTICS FOR WHEELER RIVER
|
|
Program
|
Lens
|
Completed
|
Abandoned
|
Parent
|
Daughter1
|
Final Length (m)
|
% Significantly
Mineralized2
|
|
SUMMER
|
A,
B, C Definition
|
17
|
0
|
4
|
13
|
8,402
|
94%
|
|
A,
B Extension
|
5
|
2
|
3
|
2
|
4,039
|
-
|
|
D,
E Exploration
|
4
|
0
|
2
|
2
|
2,291
|
100%
|
|
Total summer
|
26
|
2
|
9
|
17
|
14,732
|
77%
|
|
WINTER
|
A,
B, C Definition
|
20
|
0
|
2
|
18
|
9,857
|
100%
|
|
A,
B Extension
|
19
|
0
|
0
|
19
|
8,224
|
79%
|
|
D,
E Exploration
|
25
|
1
|
2
|
23
|
11,143
|
92%
|
|
Total winter
|
64
|
1
|
4
|
60
|
29,224
|
91%
|
|
|
Total 2017
|
90
|
3
|
13
|
77
|
43,956
|
87%
|
Notes:
1.
Drilled as subsurface
‘off-cut’ holes from surface ‘parent’
holes.
2.
Greater than 0.1% U3O8 over 1.0
metre.
Final
assay results from the winter and summer drilling programs were
received in May 2017 and November 2017, respectively, and were
reported in Denison’s press releases dated May 26, 2017 and
November 27, 2017. Highlight results for the 2017 drilling program
are summarized below.
●
Continued expansion of high-grade within the D
series lenses: During the 2017 drilling program, a
significant lens of high-grade mineralization was expanded and
delineated, amongst the D series lenses, through infill and
step-out drilling on an approximate 25 x 25 metres spacing. The
high-grade lens is interpreted from 29 drill holes (including 12
drill holes from the 2016 drill program) and is estimated to
measure up to 150 metres along strike, approximately 240 metres
along dip, with interpreted true thicknesses between approximately
2 and 20 metres.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
Highlight 2017
assay intersections are included in the table below.
|
HIGHLIGHT 2017 DRILL INTERSECTIONS OF THE D SERIES
LENSES
|
|
Hole Number
|
From
(m)
|
To
(m)
|
Length4
(m)
|
Grade
(% U3O8)1,2,3
|
|
WR-633D3
|
759.2
|
772.7
|
13.5
|
3.3
|
|
WR-633D3
|
765.2
|
768.7
|
3.5
|
11.8
|
|
WR-633D3
|
775.4
|
777.9
|
2.5
|
6.2
|
|
WR-689
|
712.0
|
713.0
|
1.0
|
8.6
|
|
WR-689
|
719.7
|
720.7
|
1.0
|
15.1
|
|
WR-638D4
|
787.2
|
788.7
|
1.5
|
5.5
|
|
WR-691
|
811.3
|
813.8
|
2.5
|
2.8
|
|
WR-694
|
718.0
|
726.0
|
8.0
|
3.5
|
|
WR-621D1
|
753.9
|
755.4
|
1.5
|
6.4
|
|
WR-621D2
|
754.0
|
757.0
|
3.0
|
6.3
|
|
WR-690D1
|
724.9
|
725.9
|
1.0
|
8.5
|
|
WR-690D2
|
711.5
|
715.0
|
3.5
|
4.7
|
|
WR-657D1
|
708.8
|
714.3
|
5.5
|
1.8
|
|
WR-657D2
|
680.8
|
682.8
|
2.0
|
4.3
|
Notes:
1.
U3O8 is the chemical
assay of mineralized split core samples.
2.
Composited above a cut-off grade
of 1.0% U3O8.
3.
Composites are compiled using 1.0
metre minimum mineralization thickness and 2.0 metres maximum
waste.
4.
As the drill holes are oriented steeply toward
the northwest and the basement mineralization is interpreted to dip
moderately to the southeast, the true thickness of the
mineralization is expected to be approximately 75% of the
intersection lengths.
●
Discovery and extension of the E series
lenses: High-grade unconformity-hosted mineralization was
discovered at the sub-Athabasca unconformity during the 2017 drill
program, immediately up-dip of basement mineralization intersected
during 2016, including 19.30% U3O8 over 1.0 metre
(drill hole WR-507D2) and 6.20% U3O8 over 2.5 metres
(drill hole WR-646) . The high-grade unconformity and upper
basement mineralization, termed the ‘E series’ of
lenses, represents a new high priority target area for future
resource expansion. The E series lens mineralization, both at the
unconformity and in the underlying upper basement, was further
extended during the summer drill program and remains open.
Currently the E series lenses are interpreted from 19 drill holes
and are estimated to measure up to 80 metres and 350 metres along
strike, respectively. Highlight 2017 assay intersections
include:
|
HIGHLIGHT 2017 DRILL INTERSECTIONS OF THE E SERIES
LENSES
|
|
Hole Number
|
From
(m)
|
To
(m)
|
Length4
(m)
|
Grade
(% U3O8)1,2,3
|
|
WR-646D2
|
584.5
|
586.0
|
1.5
|
8.8
|
|
WR-646D3
|
584.5
|
587.5
|
3.0
|
3.2
|
|
WR-689D3
|
549.0
|
552.0
|
3.0
|
12.9
|
|
WR-670D2
|
543.0
|
550.0
|
7.0
|
2.8
|
|
WR-646D4
|
585.5
|
593.0
|
7.5
|
1.4
|
Notes:
1.
U3O8 is the chemical
assay of mineralized split core samples.
2.
Composited above a cut-off grade
of 1.0% U3O8.
3.
Composites are compiled using 1.0
metre minimum mineralization thickness and 2.0 metres maximum
waste.
4.
As the drill holes are oriented steeply toward
the northwest and the basement mineralization is interpreted to dip
moderately to the southeast, the true thickness of the
mineralization is expected to be approximately 75% of the
intersection lengths.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
●
Continued expansion of the A and B series
lenses: Drill holes located approximately 25 metres down-dip
and up-dip of the boundaries of the A and B series lenses, as
defined by the previous resource estimate for the Gryphon deposit,
returned significant results indicating further expansion of these
lenses. Highlight 2017 assay intersections include:
|
HIGHLIGHT 2017 DRILL INTERSECTIONS OF THE A & B SERIES LENSES
OUTSIDE OF THE INFERRED RESOURCE AREA
|
|
Hole Number
|
From
(m)
|
To
(m)
|
Length4
(m)
|
Grade
(% U3O8)1,2,3
|
|
WR-689
|
564.0
|
567.0
|
3.0
|
2.9
|
|
WR-673D1
|
613.7
|
615.7
|
2.0
|
2.3
|
|
WR-681D2
|
726.4
|
727.9
|
1.5
|
1.7
|
|
WR-681D3
|
713.8
|
716.8
|
3.0
|
6.6
|
|
WR-682D1
|
762.3
|
765.8
|
3.5
|
1.6
|
|
WR-624D3
|
660.5
|
666.0
|
5.5
|
5.1
|
|
WR-582D3
|
742.0
|
748.5
|
6.5
|
4.2
|
|
WR-638D4
|
710.7
|
715.2
|
4.5
|
3.5
|
Notes:
1.
U3O8 is the chemical
assay of mineralized split core samples.
2.
Composited above a cut-off grade
of 1.0% U3O8.
3.
Composites are compiled using 1.0
metre minimum mineralization thickness and 2.0 metres maximum
waste.
4.
As the drill holes are oriented
steeply toward the northwest and the basement mineralization is
interpreted to dip moderately to the southeast, the true thickness
of the mineralization is expected to be approximately 75% of the
intersection lengths.
●
Completion of the definition drilling
program: Definition drilling designed to upgrade the inferred
resources estimated for the Gryphon deposit (A, B and C series
lenses), to an indicated level of confidence, was completed in
October 2017. A total program of 42 drill holes successfully
reached their respective targets as part of definition drilling
activities carried out through 2016 and 2017. The assay results
from these drill holes generally showed good consistency with the
inferred grade model. Highlight 2017 assay intersections
include:
|
HIGHLIGHT 2017 DRILL INTERSECTIONS OF THE A, B & C SERIES
LENSES INSIDE OF THE INFERRED RESOURCE AREA
|
|
Hole Number
|
From
(m)
|
To
(m)
|
Length4
(m)
|
Grade
(% U3O8)1,2,3
|
|
WR-687D2
|
653.4
|
662.4
|
9.0
|
4.0
|
|
WR-567D1
|
701
|
708
|
7.0
|
5.1
|
|
WR-567D1
|
724
|
727.5
|
3.5
|
5.5
|
|
WR-567D2
|
698.8
|
704.8
|
6.0
|
7.3
|
|
WR-567D2
|
733.4
|
740
|
6.6
|
1.9
|
|
WR-606D2
|
793.6
|
799.1
|
5.5
|
3.1
|
|
WR-688D3
|
763
|
768.5
|
5.5
|
2.8
|
|
WR-688D2
|
762.3
|
770.3
|
8.0
|
1.6
|
|
WR-582D2
|
746.5
|
752.5
|
6.0
|
4.3
|
|
WR-692
|
708.5
|
714.5
|
6.0
|
4.0
|
|
WR-692
|
747.4
|
753.4
|
6.0
|
5.8
|
|
WR-564D1
|
743.3
|
749.3
|
6.0
|
4.8
|
|
WR-572D1
|
641.5
|
663.0
|
21.5
|
1.8
|
|
WR-564D3
|
718.0
|
722.0
|
4.0
|
10.8
|
|
WR-604D1
|
771.0
|
789.5
|
18.5
|
2.3
|
|
WR-610D1
|
800.9
|
807.4
|
6.5
|
4.1
|
Notes:
1.
U3O8 is the chemical
assay of mineralized split core samples.
2.
Composited above a cut-off grade
of 1.0% U3O8.
3.
Composites are compiled using 1.0
metre minimum mineralization thickness and 2.0 metres maximum
waste.
4.
As the drill holes are oriented steeply toward
the northwest and the basement mineralization is interpreted to dip
moderately to the southeast, the true thickness of the
mineralization is expected to be approximately 75% of the
intersection lengths.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Updated Resource Estimate for the Gryphon Deposit
On
January 31, 2018, Denison announced an updated mineral resource
estimate for the Gryphon deposit following drilling results from
144 drill holes completed during 2016 and 2017. The updated mineral
resource estimate for Gryphon, above a cut-off grade of 0.2%
U3O8, includes 61.9
million pounds of U3O8 (1,643,000 tonnes
at 1.71% U3O8) in Indicated
Mineral Resources, and 1.9 million pounds of U3O8 (73,000 tonnes at
1.18% U3O8) in Inferred
Mineral Resources. RPA Inc. (‘RPA’), an independent
technical consulting firm with significant resource estimation
experience in high-grade Athabasca uranium deposits, was retained
by Denison on behalf of the WRJV, to prepare the updated mineral
resource estimate for the Gryphon deposit. An updated independent
Technical Report is being prepared for the Wheeler River Project,
including both the Gryphon and Phoenix deposits, and will be filed
on SEDAR (www.sedar.com) within 45 days of Denison’s press
release dated January 31, 2018.
The
Phoenix deposit is estimated to include Indicated Mineral Resources
of 70.2 million pounds of U3O8 above a cut-off
grade of 0.8% U3O8 (166,000 tonnes
at 19.1% U3O8), as disclosed in
the PEA.
With
this update to the resources estimated for the Gryphon deposit, the
combined Indicated Mineral Resources estimated for Wheeler River
increased by 88% to 132.1 million pounds U3O8, which will be
used to support the PFS, which is expected to be completed during
2018.
|
UPDATED WHEELER RIVER PROPERTY MINERAL RESOURCE ESTIMATE AS OF
JANUARY 30, 2018
|
|
Deposit
|
Category
|
Tonnes
|
Grade(% U3O8)
|
Million lbs U3O8 (100%
Basis)
|
Million lbs U3O8 (Denison
63.3%)
|
|
Gryphon
|
Indicated
|
1,643,000
|
1.7
|
61.9
|
39.2
|
|
Phoenix
|
Indicated
|
166,000
|
19.1
|
70.2
|
44.4
|
|
|
Total
Indicated
|
1,809,000
|
3.3
|
132.1
|
83.6
|
|
Gryphon
|
Inferred
|
73,000
|
1.2
|
1.9
|
1.2
|
|
Phoenix
|
Inferred
|
9,000
|
5.8
|
1.1
|
0.7
|
|
|
Total
Inferred
|
82,000
|
1.7
|
3.0
|
1.9
|
Notes:
1.
CIM
Definitions (2014) were followed for classification of Mineral
Resources.
2.
Mineral Resources for the Gryphon
deposit are reported above a cut-off grade of 0.2% U3O8. See detailed
results below for additional notes related to the Mineral Resources
estimated for the Gryphon deposit.
3.
Mineral Resources for the Phoenix
deposit are reported above a cut-off grade of 0.8% U3O8. Mineral
Resources for the Phoenix deposit were last estimated in 2014 to
reflect the expansion of the high-grade zone. As no new drilling
has been completed at Phoenix since that time, the mineral resource
estimates for the Phoenix deposit remain
current.
4.
Numbers may not add due to
rounding.
Details of the Updated Mineral Resource Estimate for the Gryphon
Deposit
The
Gryphon deposit was discovered in March 2014 and following the
completion of 66 drill holes (40,864 metres of drilling), on an
approximate 50 x 50 metre spacing, a maiden resource estimate was
completed by RPA in September 2015. The maiden estimate comprised
Inferred Mineral Resources of 43.0 million pounds of U3O8 above a cut-off
grade of 0.2% U3O8 (834,000 tonnes
at 2.3% U3O8) and included the
deposit’s A, B and C series lenses.
The
updated mineral resource estimate, announced on January 31, 2018,
was completed by RPA. For the updated mineral resource estimate,
RPA used data collected from eight diamond drilling campaigns
completed during the last four years, including a total of 117,788
metres of drilling in 210 drill holes. The updated mineral resource
estimate includes the expanded A and B series lenses, C series
lenses, and the recently delineated D and E series lenses, as
detailed in the table below.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
|
MINERAL RESOURCE ESTIMATE FOR THE GRYPHON DEPOSIT WITH AN EFFECTIVE
DATE OF JANUARY 30, 2018 (100% BASIS)
|
|
Lens
|
Category
|
Tonnes
|
Grade
(% U3O8)
|
Million lbs U3O8
(100% Basis)
|
|
A1HG
|
Indicated
|
148,000
|
7.60
|
24.72
|
|
A1
|
Indicated
|
365,000
|
0.84
|
6.74
|
|
A2
|
Indicated
|
262,000
|
0.96
|
5.52
|
|
A3
|
Indicated
|
36,000
|
0.38
|
0.30
|
|
B1
|
Indicated
|
161,000
|
1.05
|
3.74
|
|
B2
|
Indicated
|
158,000
|
1.50
|
5.24
|
|
B3
|
Indicated
|
59,000
|
1.33
|
1.71
|
|
C1
|
Indicated
|
105,000
|
1.19
|
2.74
|
|
D1HG_HW
|
Indicated
|
17,000
|
5.00
|
1.82
|
|
D1HG_MD
|
Indicated
|
11,000
|
7.37
|
1.80
|
|
D1HG_FW
|
Indicated
|
15,000
|
7.52
|
2.47
|
|
D1
|
Indicated
|
153,000
|
0.58
|
1.95
|
|
D4
|
Indicated
|
89,000
|
0.74
|
1.45
|
|
E2
|
Indicated
|
65,000
|
1.15
|
1.66
|
|
Total Indicated
|
1,643,000
|
1.71
|
61.86
|
|
A4
|
Inferred
|
2,000
|
0.34
|
0.01
|
|
B5
|
Inferred
|
10,000
|
0.25
|
0.05
|
|
D2
|
Inferred
|
5,000
|
0.40
|
0.04
|
|
D3
|
Inferred
|
13,000
|
1.19
|
0.35
|
|
E1
|
Inferred
|
31,000
|
1.30
|
0.88
|
|
E2
|
Inferred
|
12,000
|
2.01
|
0.54
|
|
Total Inferred
|
73,000
|
1.18
|
1.89
|
Notes:
1.
CIM
Definitions (2014) were followed for classification of mineral
resources.
2.
Mineral Resources are estimated
at an incremental cut-off grade of 0.2% U3O8 using a long-term
uranium price of US$50 per lb, and a US$/C$ exchange rate of 0.75.
The cut-off grade is based on incremental operating costs for
low-grade material.
3.
A
minimum mining width of 2 metres was used.
4.
High grade mineralization was
capped at 30% U3O8 and restricted at
20% U3O8 for the A1HG and
capped at 20% U3O8 for the D1HG with
no search restrictions.
5.
Low
grade mineralization was capped at 20% U3O8 for the C1 domain
with search restrictions applied to U3O8 grades greater
than or equal to 10.0% U3O8.
6.
Low
grade mineralization was capped at 15% U3O8 for the B1, B2,
E1 and E2 domains with search restrictions applied to U3O8 grades greater
than or equal to 10.0% U3O8 for the B1 domain
and 5.0% U3O8 for the E2
domain.
7.
Low
grade mineralization was capped at 10% U3O8 for the A1-A4,
B3-B7, C4-C5, and D2-D4 domains with no search
restrictions.
8.
Low
grade mineralization was capped at 5% U3O8 for the D1 domain
with no search restriction.
9.
Numbers may not add due to
rounding.
Further Technical Information
Further
details regarding the Wheeler River project and the current mineral
resource estimate for the Phoenix deposit are provided in the NI
43-101 Technical Report for the Wheeler River project titled
‘Preliminary Economic Assessment for the Wheeler River
Uranium Project, Saskatchewan, Canada’ dated April 8, 2016
with an effective date of March 31, 2016. A copy of this report is
available on Denison’s website and under its profile on SEDAR
at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml. Further
details on the current mineral resource estimate for the Gryphon
deposit are provided in Denison’s press release dated January
31, 2018. An updated Technical Report is currently being prepared
for the Wheeler River project and will be filed on SEDAR and EDGAR
on or before March 16, 2018. For further details on the assay, QAQC
and data verification procedures please see Denison's Annual
Information Form dated March 23, 2017 filed under the Company's
profile on SEDAR (www.sedar.com).
Exploration Pipeline
Properties
During
2017, the Company managed or participated in five other drilling
exploration programs (three operated by Denison) on the
Company’s pipeline properties, as reported in previous
quarters. No field exploration programs were conducted during the
fourth quarter of 2017; however, desk-top interpretations of 2017
results and planning for 2018 work programs was carried out.
Exploration pipeline property highlights for 2017 include the
results of the Company’s exploration program at its Waterbury
Lake Project, as described below.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Waterbury Lake Project
The
Waterbury Lake property consists of multiple claims covering 40,256
hectares, and is located in the infrastructure rich eastern portion
of the Athabasca Basin region in northern Saskatchewan. The
property is jointly owned by Denison (64.22%) and Korea Waterbury
Uranium Limited Partnership (‘KWULP’) (35.78%) through
the Waterbury Lake Uranium Limited Partnership
(‘WLULP’). KWULP consists of a consortium of investors
in which Korea Hydro & Nuclear Power (‘KHNP’) holds
a majority position.
Discovery of the Huskie Zone
During
the summer 2017 drilling program at Waterbury Lake, Denison
discovered high-grade, basement-hosted mineralization, located
approximately 1.5 kilometres to the northeast of the
property’s J Zone uranium deposit. The new zone of
mineralization has been named the ‘Huskie’
zone.
The
summer program included a total of nine drill holes totaling 3,722
metres. Of the eight drill holes designed to test for
basement-hosted mineralization, seven holes intersected significant
mineralization – including high-grade intersections in four
of the holes. A single hole was designed to test for unconformity
mineralization and encountered bleaching, silicification, clay
alteration and weak radioactivity in the lower sandstone, proximal
to a 15 metre unconformity offset which suggests additional
potential at the unconformity. This initial drilling campaign,
completed on an approximate 50 x 50 metre spacing, has allowed for
the wide-spaced definition of a zone of entirely basement-hosted
mineralization with geological features consistent with
basement-hosted deposits in the Athabasca Basin.
The
mineralized zone, which covers the extent of the current drilling,
occurs between 50 and 175 metres vertically below the sub-Athabasca
unconformity (265 and 390 metres vertically below surface) and
measures approximately 100 metres along strike (extent of 2017
drilling), up to 120 metres along dip, with individual lenses
varying in interpreted true thickness between approximately 2 and 7
metres. The zone is wide-open in all directions in terms of the
mineralization and associated alteration intersected. Assay results
for the summer 2017 drilling program were reported in
Denison’s press release dated October 11, 2017. Highlights
are provided in the table below.
|
SUMMER 2017 HIGHLIGHT DRILL INTERSECTIONS FOR THE HUSKIE
ZONE
|
|
Hole Number
|
From
(m)
|
To
(m)
|
Length4
(m)
|
Grade
(% U3O8)1,2,3
|
|
WAT17-443
|
298.0
|
299.0
|
1.0
|
1.2
|
|
WAT17-446A
|
306.5
|
310.2
|
3.7
|
9.1
|
|
WAT17-449
|
369.0
|
376.5
|
7.5
|
1.7
|
|
WAT17-450A
|
318.5
|
323.0
|
4.5
|
1.5
|
Notes:
1.
U3O8 is the chemical
assay of mineralized split core samples.
2.
Composited above a cut-off grade
of 0.05% U3O8.
3.
Composites are compiled using 1.0
metre minimum mineralization thickness and 2.0 metres maximum
waste.
4.
As the drill holes are oriented steeply toward
the south-southeast and the mineralized lenses are interpreted to
dip moderately to the north, the true thickness of mineralization
is expected to be approximately 75% of the intersection
lengths.
Hamilton Lake Trend
During
2016, the prospective Hamilton Lake trend was identified on the
western side of the property following the completion of a DC-IP
resistivity survey and two initial drill holes, which returned
favorable results, including weak uranium mineralization. The trend
has a minimum strike length of 4.5 kilometres to the south of the
2016 drilling (with resistivity data coverage), and is interpreted
from magnetic data to continue for a further 9 kilometres to the
north.
During
the winter 2017 program, nine drill holes totaling 4,803 metres
were completed on the Hamilton Lake trend. Seven of these holes
were drilled along strike, to the north and south, of the 2016
drilling results to test targets at the unconformity. A total of
1.8 kilometres of strike length was evaluated at a reconnaissance
scale with holes, drilled as single holes or fences, spaced at 300
or 600 metres along strike. The results confirmed strike continuity
of a significant graphitic fault zone in the basement rocks with
associated structured and altered overlying sandstone. Drill hole
WAT17-438, which optimally intersected the basement graphitic fault
zone at the unconformity, intersected weak mineralization
immediately above the unconformity, including 0.23% and 0.04%
U3O8 over 0.5 metre
intervals. The mineralization was associated with a fairly
significant sandstone alteration plume. Further drilling is
warranted along the extensive Hamilton Lake trend, along strike of
the 2017 drilling, to test the basement graphitic fault zone at the
unconformity and related high priority ‘resistivity
low’ targets.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
GENERAL AND ADMINISTRATIVE EXPENSES
Total
general and administrative expenses were $5,858,000 during 2017
(2016 - $4,420,000). These costs are mainly comprised of head
office salaries and benefits, office costs in multiple regions,
audit and regulatory costs, legal fees, investor relations
expenses, project costs, and all other costs related to operating a
public company with listings in Canada and the United States. The
increase in general and administrative expenses during 2017 was
predominantly the result of non-recurring project costs associated
with the APG transaction as well as an increase in stock-based
compensation expense.
IMPAIRMENT – MINERAL PROPERTIES
During
2017, the Company recognized an impairment reversal of $246,000
related to the Moore Lake property (2016 – impairment expense
of $2,320,000, predominantly related to Moore Lake), based on an
update to the estimated recoverable amount remaining to be received
under an option agreement with Skyharbour Resources
Ltd.
FOREIGN EXCHANGE INCOME AND EXPENSE
During
2017, a foreign exchange loss of $611,000 was recognized (2016
– foreign exchange loss of $1,477,000). The loss during 2017
is due primarily to unfavourable fluctuations in foreign exchange
rates impacting the revaluation of intercompany advances and
debt.
OTHER INCOME AND EXPENSES
During
2017, the Company recognized a gain of $2,210,000 in other
income/expense (2016 – gain of $906,000). The gain is
predominantly due to net gains on investments carried at fair value
of $1,891,000, as well as a gain of $679,000 recorded in the first
quarter of 2017 related to the extinguishment of the toll milling
contract liability related to the Cigar Lake toll milling
arrangement, offset by letter of credit fees of $317,000. The toll
milling contract liability was recognized in 2006 on the
acquisition of Denison Mines Inc. by Denison Mines Corp. (formerly
International Uranium Corporation) and was extinguished as a result
of the Company entering in the APG Transaction, whereby all
revenues under the contract have been monetized. Gains and losses
on investments carried at fair value are driven by the closing
share price of the related investee at period end. The gain in 2016
was predominantly driven by gains on investments carried at fair
value of $1,473,000 offset by $363,000 in letter of credit
fees.
EQUITY SHARE OF INCOME FROM ASSOCIATES
During
2017, the Company recognized a loss of $489,000 from its equity
share of its associate GoviEx Uranium Inc. (‘GoviEx’)
(2016 – gain of $453,000). The loss in 2017 is predominantly
due to an equity loss of $751,000 (2016 – equity loss of
$96,000), which is based on the Company’s share of
GoviEx’s net loss during the period. In addition, during
2017, the Company recorded a net dilution gain of $262,000 (2016
– dilution gain of $549,000) as a result of equity issuances
completed by GoviEx as well as other shareholders’ exercise
of GoviEx share warrants, which reduced the Company’s
ownership position in GoviEx from 20.68% at December 31, 2016 to
approximately 18.72% at December 31, 2017. The Company records its
share of income from associates a quarter in arrears, based on the
most recent publically available financial information, adjusted
for any material publicly disclosed share issuance transactions
that have occurred. See SALE OF AFRICAN-BASED URANIUM INTERESTS
below for further details of the transaction with
GoviEx.
INCOME TAX RECOVERY AND EXPENSE
During
2017, the Company recorded an income tax recovery of $3,638,000
(2016 - $3,955,000). The decrease in the income tax recovery in
2017 was mainly due a reduced deferred tax expense recognized on
the renunciation of tax-attributes related to 2017 expenditures, as
compared to the deferred tax expense recognized on the renunciation
of 2016 expenditures.
Sale of African-Based Uranium Interests
In June
2016, GoviEx and Denison completed a transaction to combine their
respective African uranium mineral interests under the direct
ownership of GoviEx (the ‘Africa Transaction’).
Pursuant to the Africa Transaction, GoviEx acquired Denison’s
wholly owned subsidiary, Rockgate Capital Corp., which held all of
Denison’s Africa-based uranium interests (collectively
‘DML Africa’), in exchange for 56,050,450 common shares
(‘Consideration Shares’) and 22,420,180 common share
purchase warrants (‘Consideration Warrants’) of
GoviEx.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
Each
Consideration Warrant is convertible into one common share of
GoviEx at a price of $0.15 per share for a period of three years.
The Consideration Warrants include an acceleration clause, which
provide that in the event that the closing price of GoviEx’s
common shares on the TSX Venture Exchange is equal to or greater
than CAD$0.24 per share for a period of 15 consecutive trading
days, GoviEx may provide holders of the Consideration Warrants with
written notice that holders have 30 days to exercise the
Consideration Warrants on the original terms, failing which the
exercise price of the Consideration Warrants will be increased to
$0.18 per share and the term of the Consideration Warrants will be
reduced by six months.
As part
of the Africa Transaction, GoviEx undertook a concurrent equity
financing by means of a non-brokered private placement (the
‘GoviEx Concurrent Financing’), in which Denison
provided the lead order for the private placement of $500,000 for
9,093,571 common shares (‘Concurrent Shares’) and
9,093,571 common share purchase warrants (‘Concurrent
Warrants’). Each Concurrent Warrant is convertible into one
common share of GoviEx for a period of three years, at a price of
$0.12 per share until June 10, 2018 and thereafter at a price of
$0.14 per share. The Concurrent Warrants include an acceleration
clause, which provide that in the event that the closing price of
GoviEx’s common shares on the TSX Venture Exchange is equal
to or greater than CAD$0.20 per share for a period of 15
consecutive trading days, GoviEx may provide holders of the
Concurrent Warrants with written notice that holders have 60 days
to exercise the Concurrent Warrants on the original terms, failing
which the Concurrent Warrants will expire unexercised.
At
December 31, 2017, Denison holds 65,144,021 common shares of GoviEx
or approximately 18.72% of GoviEx’s issued and outstanding
common shares and 31,513,751 common share purchase warrants. GoviEx
is a publicly traded company and is listed on the TSX Venture
Exchange under the symbol ‘GXU’.
For so
long as Denison holds at least 5% of the issued and outstanding
common shares of GoviEx, Denison will have the right to appoint one
director to the GoviEx board of directors and will have the right
to participate in future GoviEx equity financings in order to
maintain its pro-rata ownership. Denison’s nominee director,
Mr. David Cates, President and Chief Executive Officer of Denison,
has been appointed to the GoviEx board of directors.
During
2017, the Company recorded a loss on disposal of $81,000, due to
additional transaction costs incurred for professional services
related to the transaction with GoviEx. During 2016, the Company
recorded operating expenses of $64,000, exploration expenses of
$74,000, general and administrative expenses of $280,000, and
foreign exchange losses of $5,154,000.
Sale of Mongolian Interests
In
November 2015, Denison completed the sale of its interest in the
Gurvan Saihan Joint Venture (‘GSJV’) to Uranium
Industry a.s. (‘Uranium Industry’), of the Czech
Republic, pursuant to an amended and restated share purchase
agreement entered into on November 25, 2015 (the ‘GSJV
Agreement’). Under the terms of the GSJV Agreement, Denison
received $1.25 million in initial payments during 2015, and the
right to receive additional contingent consideration of up to $12.0
million, for total consideration of $13.25 million. The contingent
consideration is comprised of $10,000,000, payable within 60 days
of the issuance of certain mining licenses (the ‘Mining
License Receivable’) and up to an additional $2,000,000
within 365 days following the attainment of certain production
targets on the mining licenses (the ‘Production Threshold
Consideration’), each as more particularly described in
Denison’s press release dated December 1, 2015.
In July
2016, the Mineral Resources Authority of Mongolia
(‘MRAM’) issued letters to the GSJV notifying it of its
intention to grant mining licenses to the GSJV for the Hairhan,
Haraat, Gurvan Saihan and Ulzit projects. In September 2016, the
mining license certificates for all four projects were formally
issued.
As a
result, in the third quarter of 2016, the Company recognized the
$10,000,000 fair value of the Mining License Receivable and it also
recognized a corresponding gain on sale, net of additional
applicable transaction costs. The original due date for payment of
the Mining License Receivable by Uranium Industry was in November
2016.
Pursuant
to a subsequent extension agreement between Uranium Industry and
the Company, the payment due date of the Mining License Receivable
was extended from November 16, 2016 to July 16, 2017
(‘Extension Agreement’). As consideration for the
extension, Uranium Industry agreed to pay interest on the Mining
License Receivable amount at a rate of 5% per year, payable monthly
up to July 16, 2017 and they also agreed to pay a $100,000
instalment amount towards the balance of the Mining License
Receivable amount. The first payment under the Extension Agreement
was due on or before January 31, 2017. The required payments were
not made and Uranium Industry is now in default of both the GSJV
Agreement and the Extension Agreement.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
On
February 24, 2017, the Company served notice to Uranium Industry
that it was in default of its obligations under the GSJV Agreement
and the Extension Agreement and that the Mining License Receivable
and all interest payable thereon are immediately due and payable.
The Company intends to pursue all proceedings available to it to
collect the Mining License Receivable amount, and on December 12,
2017, the Company filed a Request for Arbitration under the
Arbitration Rules of the London Court of International Arbitration
in relation to the default of Uranium Industry’s obligations
under the GSJV Agreement and Extension Agreement. Uranium Industry
submitted its response to Denison’s Request for Arbitration
and a counterclaim on February 14, 2018. The parties are currently
working to appoint a chair of the arbitration panel.
In
light of the uncertainty regarding collectability, Denison impaired
the $10,000,000 Mining License Receivable to $nil at December 31,
2016. The Production Threshold Consideration is fair valued at $nil
and will be re-measured at each subsequent reporting
date.
LIQUIDITY AND CAPITAL RESOURCES
Cash
and cash equivalents were $2,898,000 at December 31, 2017 (December
31, 2016 - $11,838,000). At December 31, 2017, the company also
held investments in Guaranteed Investment Certificates
(‘GICs’) of $30,136,000 (December 31, 2017 - $nil),
which are categorized as short term investments on the balance
sheet.
The
decrease in cash and cash equivalents of $8,940,000 was due to net
cash provided by operations of $12,380,000, net cash provided by
financing activities of $13,743,000, and a net foreign exchange
gain on the translation of foreign currency balances at period end
of $439,000, offset by net cash used in investing activities of
$35,502,000.
Net
cash provided by operating activities of $12,380,000 during 2017
was predominantly due to the APG Transaction, whereby Denison
monetized its rights to receive the proceeds from the toll milling
of specified Cigar Lake ore at the McClean Lake mill, for all
periods after July 1, 2016, for gross proceeds of CAD$43,500,000.
Toll milling revenue received between July 1, 2016 and January 31,
2017 amounted to CAD$3,520,000, and was subsequently paid to APG
under the terms of the APG Transaction. The Company recorded the
net receipt of funds from APG as a prepayment of future toll
milling revenue which has been accounted for as deferred revenue.
The cash movements associated with the deferred revenue have been
classified as an operating activity, as the presale of the toll
milling revenue relates to the principal revenue-generating
activities of the Company. This cash inflow was offset by the net
loss for the period adjusted for non-cash items and changes in
working capital items.
Net
cash used in investing activities of $35,502,000 consists primarily
of the purchase of GICs for $29,740,000, as well as an increase in
restricted cash of $6,849,000. The increase in restricted cash was
largely due to the terms of the credit facility with the Bank of
Nova Scotia (‘BNS’), which was extended and amended on
January 31, 2017 (and again on January 31, 2018), such that the
Company is now required to maintain CAD$9,000,000 pledged
restricted cash on deposit at BNS. Prior to this, the Company was
required to maintain a minimum cash balance at BNS of
CAD$5,000,000.
Net
cash provided by financing activities of $13,743,000 largely
reflects the net proceeds received from the Company’s March
2017 private placement issuance of 18,337,000 common shares for
gross proceeds of $14,806,000 (CAD$20,000,290). The aggregate share
offering was comprised of the following three elements: (1) a
‘Common Share’ offering of 5,790,000 common shares of
Denison at a price of CAD$0.95 per share for gross proceeds of
CAD$5,500,500; (2) a ‘Tranche A Flow Through’ offering
of 8,482,000 flow through shares at a price of CAD$1.12 per share
for gross proceeds of CAD$9,499,840; and (3) a ‘Tranche B
Flow Through’ offering of 4,065,000 flow through shares at a
price of CAD$1.23 per share for gross proceeds of CAD$4,999,950.
The proceeds of the Tranche A and Tranche B flow through share
offerings will be used to fund the Company’s Canadian
exploration programs through to the end of 2018.
As at
December 31, 2017, the Company has spent CAD$1,976,000 toward its
obligation to spend CAD$14,499,790 on eligible exploration
expenditures as a result of the issuance of the Tranche A and
Tranche B flow-through shares in March 2017.
As at
December 31, 2017, the Company has fulfilled its obligation to
spend CAD$12,405,000 on eligible Canadian exploration expenditures
under the flow-through share financing completed in May
2016.
The
Company holds the large majority of its cash, cash equivalents, and
investments in Canadian dollars. As at December 31, 2017, the
Company’s cash and cash equivalents and GICs amount to
approximately CAD$41.4 million.
Refer
to 2018 OUTLOOK for details of the Company’s working capital
requirements for the next twelve months.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Revolving Term Credit Facility
On
January 19, 2018, the Company entered into an agreement with BNS to
extend the maturity date and the terms of the Company’s
credit facility to January 31, 2019 (‘2018 Credit
Facility’). Under the 2018 Credit Facility, the Company
continues to have access to letters of credit of up to
CAD$24,000,000, which is fully utilized for non-financial letters
of credit in support of reclamation obligations. All other terms of
the 2018 Credit Facility (tangible net worth covenant, pledged
cash, investments amount and security for the facility) remain
unchanged from those of the 2017 facility.
Contractual Obligations and Contingencies
The
Company has the following contractual obligations at December 31,
2017:
|
|
|
|
|
|
|
|
|
|
|
After
|
|
(in
thousands)
|
|
Total
|
|
1
Year
|
|
2-3
Years
|
|
4-5
Years
|
|
5
Years
|
|
Operating
Leases and
other
commitments
|
$
|
994
|
$
|
188
|
$
|
324
|
$
|
247
|
$
|
235
|
Reclamation Sites
The
Company periodically reviews the anticipated costs of
decommissioning and reclaiming its mill and mine sites as part of
its environmental planning process. The Company’s reclamation
liability, at December 31, 2017, is estimated to be $22,724,000,
which is expected to be sufficient to cover the projected future
costs for reclamation of the Company’s mill and mine
operations. There can be no assurance, however, that the ultimate
cost of such reclamation obligations will not exceed the estimated
liability contained in the Company’s financial
statements.
Elliot Lake –
The Elliot Lake uranium mine was closed in 1992 and capital works
to decommission the site were completed in 1997. The remaining
provision is for the estimated cost of monitoring the Tailings
Management Areas at the Denison and Stanrock sites and for
treatment of water discharged from these areas. The Company
conducts its activities at both sites pursuant to licenses issued
by the CNSC. In the fourth quarter of 2017, an adjustment of
$56,000 was made to the reclamation liability to reflect the
Company’s best estimate of the present value of the total
reclamation cost that will be required in the future. Spending on
restoration activities at the Elliot Lake sites is funded from
monies in the Elliot Lake reclamation trust fund. At December 31,
2017, the amount of restricted cash and investments relating to the
Elliot Lake reclamation trust fund was $2,431,000.
McClean Lake and Midwest – The McClean Lake and Midwest
operations are subject to environmental regulations as set out by
the Saskatchewan government and the CNSC. Cost estimates of future
decommissioning and reclamation activities are prepared every 5
years and filed with the applicable regulatory authorities for
approval. The most recent approved reclamation plan is dated March
2016, and the Company’s best estimate of its share of the
present value of the total reclamation liability is derived from
this plan. In the fourth quarter of 2017, the Company reduced the
liability by $20,000 to reflect changes in the long-term discount
rate used to estimate the present value of the reclamation
liability. The majority of the reclamation costs are expected to be
incurred between 2037 and 2055.
Under
the Mineral Industry Environmental
Protection Regulations, 1996, the Company is required to
provide its pro-rata share of financial assurances to the Province
of Saskatchewan. Under the March 2016 approved plan, the Company
increased its financial assurance to CAD$24,135,000, providing
irrevocable standby letters of credit from BNS in favour of
Saskatchewan’s Ministry of Environment. At present, to
provide the required standby letters of credit, the Company is
utilizing the full capacity of the 2018 Credit Facility and has
committed an additional CAD$135,000 with BNS as restricted cash
collateral. A further CAD$9,000,000 has also been provided as cash
collateral for the 2018 Credit Facility.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
FINANCIAL INSTRUMENTS
|
|
|
Financial
|
|
Fair
|
|
December 31,
|
|
December 31,
|
|
|
|
Instrument
|
|
Value
|
|
2017
|
|
2016
|
|
(in
thousands)
|
|
Category (1)
|
|
Hierarchy
|
|
Fair Value
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
Category D
|
|
|
$
|
2,898
|
$
|
11,838
|
|
Trade
and other receivables
|
|
Category D
|
|
|
|
3,819
|
|
2,403
|
|
Investments
|
|
|
|
|
|
|
|
|
|
Equity
instruments (shares)
|
|
Category A
|
|
Level 1
|
|
2,238
|
|
1,228
|
|
Equity
instruments (warrants)
|
|
Category A
|
|
Level 2
|
|
3,608
|
|
2,517
|
|
Equity
instruments (shares)
|
|
Category B
|
|
Level 1
|
|
20
|
|
15
|
|
Debt
instruments (GIC’s)
|
|
Category A
|
|
Level 1
|
|
30,136
|
|
-
|
|
Restricted
cash and equivalents
|
|
|
|
|
|
|
|
|
|
Elliot
Lake reclamation trust fund
Credit
facility pledged assets
Reclamation
letter of credit collateral
|
|
Category C
Category C
Category C
|
|
|
|
2,431
7,174
107
|
|
2,213
-
101
|
|
|
|
|
|
|
$
|
52,431
|
$
|
20,315
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Account
payable and accrued liabilities
|
|
Category E
|
|
|
|
4,588
|
|
4,141
|
|
Debt
obligations
|
|
Category E
|
|
|
|
-
|
|
276
|
|
|
|
|
|
|
$
|
4,588
|
$
|
4,417
|
Notes:
1.
Financial instrument designations are as follows:
Category A=Financial assets and liabilities at fair value through
profit and loss; Category B=Available for sale investments;
Category C=Held to maturity investments; Category D=Loans and
receivables; and Category E=Financial liabilities at amortized
cost.
The
Company is exposed to credit risk and liquidity risk in relation to
its financial instruments. Its credit risk in relation to its cash
and cash equivalents, debt instruments and restricted cash and cash
equivalents is limited by dealing with credit worthy financial
institutions. The Company’s trade and other receivables
balance relates to a small number of customers who are considered
credit worthy and with whom the Company has established a
relationship through its past dealings.
Liquidity
risk, in which the Company may encounter difficulties in meeting
obligations associated with its financial liabilities as they
become due, is managed through the Company’s planning and
budgeting process which determines the funds required to support
the Company’s normal operating requirements on an ongoing
basis. The Company ensures that there is sufficient committed
capital to meet its short-term business requirements, taking into
account its anticipated cash flows from operations, its holdings of
cash and equivalents and debt instruments and its access to credit
facilities and capital markets, if required.
The
Company's investments that are designated as financial assets at
fair value through profit or loss have resulted in other income of
$1,891,000 during 2017 (2016 - $1,473,000).
The
Company’s investments designated as available for sale have
resulted in an unrealized gains recognized in accumulated other
comprehensive income of $4,000 during 2017 (2016 -
$3,000).
TRANSACTIONS WITH RELATED PARTIES
Uranium Participation Corporation
The
Company is a party to a management services agreement with UPC,
which was renewed in 2016 with an effective date of April 1, 2016
and a term of three years. Under the current agreement, Denison
receives the following fees from UPC: a) a base fee of CAD$400,000
per annum, payable in equal quarterly installments; b) a variable
fee equal to (i) 0.3% per annum of UPC’s total assets in
excess of CAD$100 million and up to and including CAD$500 million,
and (ii) 0.2% per annum of UPC’s total assets in excess of
CAD$500 million; c) a fee, at the discretion of the Board, for
on-going monitoring or work associated with a transaction or
arrangement (other than a financing, or the acquisition of or sale
of U3O8 or UF6); and d) a
commission of 1.0% of the gross value of any purchases or sales of
U3O8 or UF6 or gross interest
fees payable to UPC in connection with any uranium loan
arrangements.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
The
following amounts were earned from UPC for the years
ended:
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
(in
thousands)
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fee Revenue
|
|
|
|
|
|
|
|
|
|
Base
and variable fees
|
|
|
|
|
$
|
1,108
|
$
|
1,291
|
|
Discretionary
fees
|
|
|
|
|
|
-
|
|
77
|
|
Commission
fees
|
|
|
|
|
|
289
|
|
116
|
|
|
|
|
|
|
$
|
1,397
|
$
|
1,484
|
At
December 31, 2017, accounts receivable includes $383,000 (December
31, 2016 – $160,000) due from UPC with respect to the fees
and transactions discussed above.
Korea Electric Power Corporation (‘KEPCO’) and
KHNP
In
connection with KEPCO’s investment in Denison in June 2009,
KEPCO and Denison were parties to a strategic relationship
agreement. In December 2016, Denison was notified that
KEPCO’s indirect ownership of Denison’s shares had been
transferred from an affiliate of KEPCO to an affiliate of
KEPCO’s wholly-owned subsidiary, KHNP. In September 2017,
Denison and KHNP’s affiliate entered into an amended and
restated strategic relationship agreement, in large part providing
KHNP’s affiliate with the same rights as those previously
given to KEPCO under the prior agreement, including entitling
KHNP’s affiliate to: (a) subscribe for additional common
shares in Denison’s future public equity offerings; (b) a
right of first opportunity if Denison intends to sell any of its
substantial assets; (c) a right to participate in certain purchases
of substantial assets which Denison proposes to acquire; and (d) a
right to nominate one director to Denison’s board so long as
its share interest in Denison is above 5.0%.
As at
December 31, 2017, KEPCO, through its subsidiaries, including KHNP,
holds 58,284,000 shares of Denison representing a share interest of
approximately 10.42%.
KHNP,
through its subsidiaries, is also the majority member of the KWULP.
KWULP is a consortium of investors that holds the non-Denison owned
interests in Waterbury Lake Uranium Corporation
(‘WLUC’) and WLULP, entities whose key asset is the
Waterbury Lake property. At December 31, 2017, Denison holds a 60%
interest in WLUC and a 64.22% interest in WLULP - the other 40% and
35.78% respective interests in these entities is held by KWULP.
When a spending program is approved by the participants, each
participant is required to fund these entities based upon its
respective ownership interest or be diluted accordingly. Spending
program approval requires 75% of the voting interest.
In
January 2014, Denison agreed to allow KWULP to defer a decision
regarding its funding obligation to WLUC and WLULP until September
30, 2015 and to not be immediately diluted as per the dilution
provisions in the relevant agreements (‘Dilution
Agreement’). Instead, under the Dilution Agreement, dilution
would be delayed until September 30, 2015 and then applied in each
subsequent period, if applicable, in accordance with the original
agreements. In exchange, Denison received authorization to approve
spending programs on the property, up to an aggregate
CAD$10,000,000, until September 30, 2016 without obtaining approval
from 75% of the voting interest. Under subsequent amendments in
December 2016 and January 2018, Denison and KWULP have agreed to
extend Denison’s authorization under the Dilution Agreement
to approve program spending up to an aggregate CAD$15,000,000 until
December 31, 2018.
In
2016, Denison funded 100% of the approved fiscal 2016 program for
Waterbury Lake and KWULP continued to dilute its interest in the
WLULP. As a result, Denison increased its interest in the WLULP
from 61.55% to 63.01%, which was accounted for using an effective
date of August 31, 2016. The increased ownership interest resulted
in Denison recording its increased pro-rata share of the net assets
of Waterbury Lake, the majority of which relates to an addition to
mineral property assets of $589,000.
In
2017, Denison funded 100% of the approved fiscal 2017 program for
Waterbury Lake and KWULP continued to dilute its interest in the
WLULP. As a result, Denison increased its interest in the WLULP
from 63.01% to 64.22%, in two steps, which has been accounted for
using effective dates of May 31, 2017 and August 31, 2017. The
increased ownership interest resulted in Denison recording its
increased pro-rata share of the net assets of Waterbury Lake, the
majority of which relates to an addition to mineral property assets
of $600,000.
MANAGEMENT’S DISCUSSION
& ANALYSIS
|
Other
All
services and transactions with the following related parties listed
below were made on terms equivalent to those that prevail with
arm’s length transactions:
●
During 2017, the
Company incurred investor relations, administrative service fees
and other expenses of $147,000 (2016 – $140,000) with Namdo
Management Services Ltd, which shares a common director with
Denison. These services were incurred in the normal course of
operating a public company. At December 31, 2017, an amount of $nil
(December 31, 2016 – $nil) was due to this
company.
●
During 2017, the
Company incurred office expenses of $46,000 (2016 - $23,000) with
Lundin S.A, a company which provides office and administration
services to the Executive Chairman, other directors and management
of Denison. At December 31, 2017, an amount of $nil (December 31,
2016 – $6,000) was due to this company.
COMPENSATION OF KEY MANAGEMENT PERSONNEL
Key
management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Company, directly or indirectly. Key management
personnel include the Company’s executive officers,
vice-presidents and members of its Board of Directors.
The
following compensation was awarded to key management
personnel:
|
|
|
|
|
Year Ended
December 31,
|
|
Year Ended
December 31,
|
|
|
(in
thousands)
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and short-term employee benefits
|
|
|
|
|
$
|
(1,348)
|
$
|
(1,163)
|
|
Share-based
compensation
|
|
|
|
|
|
(834)
|
|
(262)
|
|
|
|
|
|
|
$
|
(2,182)
|
$
|
(1,425)
|
OFF-BALANCE SHEET ARRANGEMENTS
The
Company does not have any off-balance sheet
arrangements.
SUBSEQUENT EVENTS
Bank of Nova Scotia Credit Facility Renewal
On
January 19, 2018, the Company entered into an agreement with the
Bank of Nova Scotia to extend the maturity date and the terms of
the 2017 facility. Under the 2018 Credit Facility, the maturity
date has been extended to January 31, 2019 and the Company
continues to have access to credit up to CAD$24,000,000 whose use
is restricted to non-financial letters of credit in support of
reclamation obligations. All other terms of the 2018 Credit
Facility (tangible net worth covenant, pledged cash, investments
amount and security for the facility) remain unchanged from those
of the 2017 facility.
The
2018 Credit Facility is subject to letter of credit and standby
fees of 2.40% (0.40% on the first CAD$9,000,000) and 0.75%
respectively.
OUTSTANDING SHARE DATA
At
March 8, 2017, there were 559,183,209 common shares issued and
outstanding, stock options outstanding for 11,799,650 Denison
common shares, and 1,673,077 share purchase warrants outstanding
for a total of 572,655,936 common shares on a fully-diluted
basis.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Denison’s
plans for 2018 are a continuation of its strategy focused on the
activities necessary to position it as the next uranium producer in
Canada. Accordingly, the 2018 budget is heavily concentrated on
evaluation and exploration activities designed to strategically
advance the Company’s 63.3% owned flagship Wheeler River
project.
|
(CAD
‘000)
|
|
2018 BUDGET
|
|
|
Canada (1)
|
|
|
|
|
Development
& Operations
|
|
(5,230)
|
|
|
Mineral
Property Exploration & Evaluation
|
|
(16,760)
|
|
|
|
|
(21,990)
|
|
|
Other (1)
|
|
|
|
|
UPC
Management Services
|
|
1,230
|
|
|
DES
Environmental Services
|
|
1,330
|
|
|
Corporate
Administration & Other
|
|
(4,760)
|
|
|
|
|
(2,200)
|
|
|
Total(2)
|
|
$ (24,190)
|
|
Notes:
1.
Budget figures are expressed in
Canadian dollars as the Company’s presentation currency
changed to the Canadian dollar effective January 1, 2018.
See PENDING CHANGE IN ACCOUNTING POLICY AND NEW ACCOUNTING
PRONOUNCEMENTS for more details.
2.
Only material operations
shown.
Development & Operations
In
2018, Denison’s share of operating and capital expenditures
at McClean Lake and Midwest are budgeted to be CAD$4.3 million.
Operating expenditures at McClean include CAD$3,965,000 in respect
of Denison’s share of the planned 2018 budget for the
advancement of the SABRE mining method. The 2018 SABRE program
includes the re-design and fabrication of the SABRE mining
equipment as well as the drilling and casing of test mining holes
to the top of the McClean North orebody in preparation for test
mining activities planned for 2019.
2018
operating expenditures are also expected to include CAD$751,000 for
reclamation expenditures at Denison’s legacy Elliot Lake mine
site.
Mineral Property Exploration & Evaluation
The
Company’s budget for exploration and evaluation activities in
2018 is approximately CAD$16.8 million (Denison’s share).
Including partner’s share of expenses, the projected 2018
exploration and evaluation work program is budgeted to be CAD$21.8
million, and is expected to include approximately 80,000 metres of
drilling across six of Denison’s projects. The budget will be
mainly focused on the Company’s high priority projects,
namely Wheeler River, Waterbury Lake and Hook-Carter. Consistent
with past years, the majority of the exploration activity will
occur during the winter and summer months, resulting in higher
levels of expenditures in the first and third quarters of 2018.
Evaluation activities are expected to continue at the Wheeler River
project throughout the year.
Wheeler River
A
CAD$13.1 million budget (100% basis) has been approved for the
Wheeler River project. The budget includes exploration expenditures
of CAD$9.5 million and evaluation expenditures of CAD$3.6
million.
Denison’s
share of the budget is expected to be CAD$9.8 million, which
represents 75% of joint venture expenses. The increased funding by
Denison (ownership of 63.3%) in 2017 and 2018 is in accordance with
an agreement amongst the WRJV partners, which allows Denison to
increase its interest in the project to up to approximately 66% by
the end of 2018. Under the terms of the agreement, Cameco will fund
50% of its ordinary 30% share to the end of 2018, and JCU will
continue to fund its 10% interest in the project (see
Denison’s press release dated January 10, 2017).
The
2018 exploration program is expected to include approximately
45,000 metres of diamond drilling in 60 drill holes and will be
results oriented with an initial focus on step-out drilling along
strike of the Gryphon deposit and drill testing of high-priority
and largely untested regional targets on the property.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
■
Gryphon Exploration Drilling
The
Gryphon deposit remains open in numerous areas with a significant
amount of potential for future resource growth. Priority target
areas include: (1) Along strike to the northeast of the E series
lenses, where both unconformity and basement potential exists; (2)
Down plunge of the A and B series lenses; (3) Along strike to the
northeast and southwest of the D series lenses; and (4) Within the
currently defined D series lenses, where additional high-grade
shoots may exist.
■
Regional Exploration Drilling
Very
little regional exploration has taken place on the property in
recent years, with drilling efforts focused on the Phoenix and
Gryphon deposits, which were discovered by Denison in 2008 and 2014
respectively. The property is host to numerous uranium-bearing
lithostructural corridors which are under- or unexplored and have
the potential for additional large, high-grade unconformity or
basement hosted deposits. The 2018 exploration program will see
renewed focus along these corridors to follow-up on previous
mineralized drill results, or to test geophysical targets
identified from past surveys.
The
2018 evaluation program will be aimed at completion of the Wheeler
River PFS during the year. As outlined in the Company’s press
release dated January 4, 2018, Denison has assembled a group of
leading engineering and consulting firms to support the
Company’s in-house project development team in the completion
of the PFS.
Exploration Pipeline Properties
While
focused on advancing Wheeler River in 2018, Denison remains active
on a select group of high-priority exploration pipeline projects
– each assessed to have the potential to deliver a meaningful
discovery of new uranium mineralization.
Denison-Operated Projects
Exploration
drill programs are planned on three high-priority Denison-operated
exploration pipeline projects – including Waterbury Lake,
Hook-Carter and South Dufferin.
The
Huskie Zone was discovered during the Company’s summer 2017
drilling program at Waterbury Lake. The mineralized zone discovered
in 2017 is entirely basement-hosted occurring between 50 and 175
metres vertically below the sub-Athabasca unconformity (265 and 390
metres vertically below surface) and measuring approximately 100
metres along strike (extent of 2017 drilling), up to 120 metres
along dip, with individual lenses varying in interpreted true
thickness between approximately 2 and 7 metres. The zone is
wide-open in all directions in terms of the mineralization and
associated alteration intersected. The 2018 exploration program is
budgeted at CAD$3.5 million (100% Denison funded with KWULP
continuing to dilute) and is designed with the potential to expand
the Huskie zone mineralization through step-out drilling. A diamond
drilling program of approximately 14,400 metres in 36 drill holes
is planned for 2018 and is expected to be carried out during the
winter and summer drilling seasons.
The
Hook-Carter property consists of 45 claims covering 20,522 hectares
and is located in the western portion of the Athabasca Basin. The
project is highlighted by 15 kilometres of strike potential along
the prolific Patterson Corridor – host to the recently
discovered Arrow deposit (NexGen Energy Ltd.), Triple R deposit
(Fission Uranium Corp.), and Spitfire discovery (Purepoint Uranium
Group Inc., Cameco, and Orano Canada), which occur within 8 to 20
kilometres of the property. The property is significantly
underexplored compared to other properties along this trend, with
only five of eight historic drill holes located along the 15
kilometres of Patterson Corridor strike length. The property also
covers significant portions of the Derkson and Carter Corridors,
which provide additional priority target areas.
During
2017, exploration activities at the Hook-Carter project included
ground electromagnetic and resistivity surveying covering 7.5
kilometres of strike along the shallower portions of the Patterson
Corridor. The surveys have generated numerous compelling
unconformity and basement targets which Denison believes warrant
drill testing. A diamond drilling program is planned for the winter
of 2018, consisting of approximately 10,000 metres in 17 drill
holes, with a budget of CAD$2.2 million (100% Denison funded due to
ALX’s carried interest). The property is owned 80% by Denison
and 20% by ALX, and Denison has agreed to fund ALX's share of the
first CAD$12M in expenditures (see Denison’s Press Releases
dated October 13th and November 7th, 2016).
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
The
South Dufferin project is 100% Denison owned and located just off
the southern margin of the Athabasca Basin of northern
Saskatchewan. The property covers the southern extension of the
Virgin River Shear Zone, which hosts known uranium mineralization
at Cameco’s Centennial deposit approximately 20 to 25
kilometres along trend to the north. Exploration potential exists
for basement-hosted uranium mineralization associated with the
Dufferin Lake fault (which has an apparent offset of 200 m+) and
parallel faults within the Virgin Lake Shear zone.
Priority
drill targets have been developed across the property from recent
ground geochemical and geophysical surveying. A diamond drilling
program is planned for summer 2018 comprising approximately 2,200
metres of drilling in 16 holes with a total budget of approximately
CAD$1.0 million.
Non-Operated Projects
The
2018 budget also provides for funding of Denison’s share of
Orano Canada operated exploration programs at the McClean Lake
project (22.5% Denison) and Midwest project (25.17% Denison), with
a total budget of CAD$570,000 (Denison’s share).
MANAGEMENT AND ENVIRONMENTAL SERVICES
Net
management fees expected for 2018 from the management services
agreement with UPC are budgeted at CAD$1.2 million. A portion of
the management fees earned from UPC are based on UPC’s net
asset value, and thus the uranium spot price. Denison’s
budget for 2018 assumes a uranium spot price of $20.00 per pound
U3O8. Each $2 per
pound U3O8 increase is
expected to translate into approximately CAD$0.2 million in
additional management fees to Denison.
Revenue
from operations at DES during 2018 is budgeted to be CAD$9.6
million, and operating, overhead, and capital expenditures are
budgeted to be CAD$8.3 million.
CORPORATE ADMINISTRATION AND OTHER
Corporate
administration expenses are budgeted to be CAD$4.7 million in 2018
and include head office salaries and benefits, office costs, audit
and regulatory costs, legal fees, investor relations expenses and
all other costs related to operating a public company with listings
in Canada and the United States.
In
addition to Corporate administration expenses in 2018, letter of
credit and standby fees relating to the 2018 Credit Facility are
expected to be approximately CAD$400,000, which is expected to be
largely offset by interest income on the Company’s short-term
investments.
CONTROLS AND PROCEDURES
The
Company carried out an evaluation, under the supervision and with
the participation of its management, including the President and
Chief Executive Officer and the Vice-President Finance and Chief
Financial Officer, of the effectiveness of the design and operation
of the Company’s ‘disclosure controls and
procedures’ (as defined in the Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. Based upon that
evaluation, the President and Chief Executive Officer and the
Vice-President Finance and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures are
effective as of December 31, 2017.
The
Company’s management is responsible for establishing and
maintaining an adequate system of internal control over financial
reporting. Management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the
Internal Control –
Integrated Framework, 2013 issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Company’s internal
control over financial reporting was effective as of December 31,
2017.
There
has not been any change in the Company’s internal control
over financial reporting that occurred during 2017 that has
materially affected, or is reasonably likely to materially affect,
the Company’s internal control over
financial
reporting.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The
preparation of consolidated financial statements in accordance with
IFRS requires the use of certain critical accounting estimates and
judgements that affect the amounts reported. It also requires
management to exercise judgement in applying the Company’s
accounting policies. These judgements and estimates are based on
management’s best knowledge of the relevant facts and
circumstances taking into account previous experience. Although the
Company regularly reviews the estimates and judgements made that
affect these financial statements, actual results may be materially
different.
Significant
estimates and judgements made by management relate to:
Determination of a mineral property being sufficiently
advanced
The
Company follows a policy of capitalizing non-exploration related
expenditures on properties it considers to be sufficiently
advanced. Once a mineral property is determined to be sufficiently
advanced, that determination is irrevocable and the capitalization
policy continues to apply over the life of the property. In
determining whether or not a mineral property is sufficiently
advanced, management considers a number of factors, including, but
not limited to: current uranium market conditions, the quality of
resources identified, access to the resource, the suitability of
the resource to current mining methods, ease of permitting,
confidence in the jurisdiction in which the resource is located and
milling complexity.
Many of
these factors are subject to risks and uncertainties that can
support a ‘sufficiently advanced’ determination as at
one point in time but not support it at another. The final
determination requires significant judgment on the part of the
Company’s management and directly impacts the carrying value
of the Company’s mineral properties.
Mineral property impairment reviews and impairment
adjustments
Mineral
properties are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. When an indicator is identified, the Company
determines the recoverable amount of the property, which is the
higher of an asset’s fair value less costs of disposal and
value in use. An impairment loss is recognized if the carrying
value exceeds the recoverable amount. The recoverable amount of a
mineral property may be determined by reference to estimated future
operating results and discounted net cash flows, current market
valuations of similar properties or a combination of the above. In
undertaking this review, management of the Company is required to
make significant estimates of, amongst other things: reserve and
resource amounts, future production and sale volumes, forecast
commodity prices, future operating, capital and reclamation costs
to the end of the mine’s life and current market valuations
from observable market data which may not be directly comparable.
These estimates are subject to various risks and uncertainties,
which may ultimately have an effect on the expected recoverable
amount of a specific mineral property asset. Changes in these
estimates could have a material impact on the carrying value of the
mineral property amounts and the impairment losses
recognized.
Deferred revenue – toll milling
In
February 2017, Denison closed an arrangement with Anglo Pacific
Group PLC and one of its wholly-owned subsidiaries (collectively
‘APG’). Under the arrangement, Denison monetized its
right to receive future toll milling cash receipts from July 1,
2016 onwards from the MLJV under the current toll milling agreement
with the CLJV (see note 13 to the audited consolidated financial
statements) for an upfront cash payment. The arrangement consisted
of a loan structure and a stream arrangement (collectively, the
‘APG Arrangement’). Significant judgement was required
to determine whether the APG Arrangement should be accounted for as
a financial obligation (ie: debt) or deferred revenue.
Key
factors that support the deferred revenue conclusion reached by
management include, but are not limited to: a) Limited recourse
loan structure – amounts due to APG are generally repayable
only to the extent of Denison’s share of the toll milling
revenues earned by the MLJV from the processing of the first 215
million pounds of U3O8 from the Cigar
Lake mine on or after July 1, 2016, under the terms of the current
Cigar Lake toll milling agreement; and b) No warranty of the future
rate of production - no warranty is provided by Denison to APG
regarding the future rate of production at the Cigar Lake mine and
/ or the McClean Lake mill, or the amount and / or collectability
of cash receipts to be received by the MLJV in respect of toll
milling of Cigar Lake ore.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
Deferred tax assets and liabilities
Deferred
tax assets and liabilities are computed in respect of taxes that
are based on taxable profit. Taxable profit will often differ from
accounting profit and management may need to exercise judgement to
determine whether some taxes are income taxes (and subject to
deferred tax accounting) or operating expenses.
Deferred
tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply when the
temporary differences between accounting carrying values and tax
basis are expected to be recovered or settled. The determination of
the ability of the Company to utilize tax loss carry forwards to
offset deferred tax liabilities requires management to exercise
judgment and make certain assumptions about the future performance
of the Company. Management is required to assess whether it is
‘probable’ that the Company will benefit from these
prior losses and other deferred tax assets. Changes in economic
conditions, commodity prices and other factors could result in
revisions to the estimates of the benefits to be realized or the
timing of utilizing the losses.
Reclamation obligations
Asset
retirement obligations are recorded as a liability when the asset
is initially constructed or a constructive or legal obligation
exists and typically involve identifying costs to be incurred in
the future and discounting them to the present using an appropriate
discount rate for the liability. The determination of future costs
involves a number of estimates relating to timing, type of costs,
mine closure plans, and review of potential methods and technical
advancements. Furthermore, due to uncertainties concerning
environmental remediation, the ultimate cost of the Company’s
decommissioning liability could differ materially from amounts
provided. The estimate of the Company’s obligation is subject
to change due to amendments to applicable laws and regulations and
as new information concerning the Company’s operations
becomes available. The Company is not able to determine the impact
on its financial position, if any, of environmental laws and
regulations that may be enacted in the future.
PENDING CHANGE IN ACCOUNTING POLICY
AND NEW ACCOUNTING PRONOUNCEMENTS
Pending Change in Accounting Policy
Subsequent
to the divestiture of Denison’s African-based uranium
interests in 2016 and Mongolian uranium interests in 2015, the
Company has focused its activities on becoming the next uranium
producer in Canada. As a result of this change in focus, the
Company will change its reporting currency from the U.S. dollars to
Canadian dollars effective January 1, 2018. This change will be
accounted for as a change in accounting policy and the comparative
periods will be restated to reflect the change.
Accounting Standards Issued But Not Yet Applied
The
Company will adopt the following new accounting pronouncements
which are effective for fiscal periods of the Company beginning on
or after January 1, 2018:
International Financial Reporting Standard 9, Financial Instruments
(‘IFRS 9’)
In July
2014, the IASB published the final version of IFRS 9, which brings
together the classification, measurement, impairment and hedge
accounting phases of the IASB’s project to replace IAS 39
Financial Instruments: Recognition and Measurement. IFRS 9 replaces
the multiple classifications for financial assets in IAS 39 with a
single principle based approach for determining the classification
of financial assets based on how an entity manages its financial
instruments in the context of its business model and the
contractual cash flow characteristics of the financial assets. The
new standard also requires a single impairment method to be used,
replacing the multiple impairment methods in IAS 39. The final
version of IFRS 9 is effective for periods beginning on or after
January 1, 2018; however, it is available for early
adoption.
Denison
will adopt IFRS 9 on January 1, 2018 and has identified certain
modifications to the Company’s current accounting policies
that are expected to be required. Notable changes include (1)
investments in equity securities currently being accounted for as
fair value through other comprehensive income will need to be
accounted for as fair value through profit and loss under IFRS 9,
and (2) impairments on loan and receivables currently being
recognized when there is objective evidence of impairment will need
to be recognized based upon an expected credit loss model under
IFRS 9.
Neither
of these changes are significant in amount and the adoption of IFRS
9 will not have a material impact on Denison’s reported
financial results.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
International Financial Reporting Standard 15, Revenue from
Contracts with Customers (‘IFRS 15’)
IFRS 15
deals with revenue recognition and establishes principles for
reporting useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and cash
flows arising from an entity’s contracts with customers.
Under IFRS 15, revenue is recognized when a customer obtains
control of a good or service. The standard replaces IAS 18
‘Revenue’ and IAS 11 ‘Construction
Contracts’ and related interpretations. The standard is
effective for annual periods beginning on or after January 1, 2018
and earlier application is permitted.
The
Company has reviewed its contracts with customers with and does not
expect that the timing or amounts of revenue currently recognized
related to its UPC management services and DES care and maintenance
contracts will be impacted by the transition to IFRS 15. It is
anticipated, however, that the accounting for the APG Transaction
will be impacted by the adoption of IFRS 15 resulting from the fact
that there is a significant financing component in the contract as
defined by IFRS 15 (See REVENUES for further details of the APG
Transaction). It is expected that the finance costs and revenue
will increase on adoption of this standard. The Company will use
the modified retrospective approach of adoption.
International Financial Reporting Standard 16, Leases (‘IFRS
16’)
In
January 2016, the IASB issued IFRS 16 which replaces existing
standards and interpretations under IAS 17 ‘Leases’.
IFRS 16 requires all leases, including financing and operating
leases, to be reported on the balance sheet with the intent of
providing greater transparency for a company’s lease assets
and liabilities. IFRS 16 is effective for annual periods beginning
on or after January 1, 2019 with early adoption
permitted.
The
Company has not evaluated the impact of adopting this standard and
will not adopt the standard early.
RISK FACTORS
There
are a number of factors that could negatively affect
Denison’s business and the value of Denison’s common
shares (the ‘Shares’), including the factors listed
below. The following information pertains to the outlook and
conditions currently known to Denison that could have a material
impact on the financial condition of Denison. Other factors may
arise in the future that are currently not foreseen by management
of Denison, which may present additional risks in the future.
Current and prospective security holders of Denison should
carefully consider these risk factors.
Speculative Nature of Exploration and
Development
Exploration for minerals and the development of mineral properties
is speculative, and involves significant uncertainties and
financial risks that even a combination of careful evaluation,
experience and knowledge may not eliminate. While the discovery of
an ore body may result in substantial rewards, few properties which
are explored are commercially mineable or ultimately developed into
producing mines. Major expenses may be required to
properly evaluate the
prospectivity of an exploration property, to develop new ore bodies
and to estimate mineral resources and establish mineral reserves. There
is no assurance that the Company’s uranium deposits are
commercially mineable.
Imprecision of Mineral Reserve and Resource Estimates
Mineral reserve and resource figures are estimates, and no
assurances can be given that the estimated quantities of uranium
are in the ground and could be produced or that Denison will
receive the prices assumed in determining its mineral
reserves. Such estimates are
expressions of judgment based on knowledge, mining experience,
analysis of drilling results and industry best practices.
Valid estimates made at a given time
may significantly change when new information becomes
available. While Denison
believes that the mineral reserve and resource estimates included
are well established and reflect management’s best estimates,
by their nature, mineral reserve and resource estimates are
imprecise and depend, to a certain extent, upon statistical
inferences and geological interpretations which may ultimately
prove inaccurate.
Furthermore, market price
fluctuations, as well as increased capital or production costs or
reduced recovery rates, may render mineral reserves and
resources uneconomic
and may ultimately result in a
restatement of mineral reserves and resources. The evaluation of mineral reserves or resources is
always influenced by economic and technological factors, which may
change over time.
Inability to Expand and Replace Mineral Reserves and
Resources
Denison’s mineral reserves and resources at its McClean Lake,
Midwest, Wheeler River and
Waterbury Lake projects are Denison’s material future sources of uranium concentrates.
Unless other mineral reserves or
resources are discovered, Denison’s sources of future
production for uranium concentrates will decrease over time when
its current mineral reserves and resources are depleted.
There can be no assurance that
Denison’s future exploration, development and acquisition
efforts will be successful in replenishing its mineral reserves and
resources. In addition, while
Denison believes that many of its properties demonstrate development potential, there can be no
assurance that they can or will be successfully developed
and put into production or that
they will be able to replace production in future
years.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
Economics of Developing Mineral Properties
Denison’s current and future uranium production is dependent
in part on the successful discovery and development of new ore
bodies and/or revival of previously existing mining
operations. It is impossible to
ensure that Denison’s
current exploration and development programs will result in
profitable commercial mining operations. Where the Company has been able to estimate the
existence of mineral resources and mineral reserves, substantial
expenditures will be required to establish economic feasibility for
commercial development and to obtain the required environmental
approvals, permitting and assets to commence commercial
operations.
The economic feasibility of development projects is based upon many
factors, including, among others: the accuracy of mineral reserve
and resource estimates; metallurgical recoveries; capital and
operating costs of such projects; government regulations relating
to prices, taxes, royalties, infrastructure, land tenure, land use,
importing and exporting, and environmental
protection; political and
economic climate; and uranium
prices, which are historically cyclical. Development projects are
also subject to the successful completion of engineering studies,
issuance of necessary governmental permits and availability of
adequate financing.
Development projects have no operating history upon which to base
estimates of future cash flow. Denison’s estimates of mineral
reserves and resources and cash operating costs are, to a large
extent, based upon detailed geological and engineering analysis.
The decision as to whether a property contains a commercial mineral
deposit and should be brought into production will depend upon the
results of exploration programs and/or feasibility studies, and the
recommendations of duly qualified engineers and/or geologists, all
of which involves significant expense. Economic analyses and feasibility studies
derive estimates of capital and
operating costs based upon many factors, including, among others:
anticipated tonnage and grades of ore to be mined and processed;
the configuration of the ore body; ground and mining conditions;
expected recovery rates of the uranium from the ore; and alternate
mining methods.
As at the date hereof, the results of economic analyses for Denison's
projects are
preliminary in nature and
include inferred mineral resources,
which are considered too speculative geologically to have the
economic considerations applied that would enable them to be
categorized as mineral reserves. There is no certainty that any
forecasts in an economic analysis prepared by or for the Company would be realizable or that any resources would
ever be upgraded to reserves. Mineral resources that are not
mineral reserves do not have demonstrated economic
viability.
It is possible that actual costs and economic returns of current
and new mining operations may differ materially from
Denison’s best estimates. It is not unusual in the mining industry for new
mining operations to experience unexpected problems during the
start-up phase, take much longer than originally anticipated to
bring into a producing phase, and to require more capital than
anticipated. The ability to
sell and profit from the sale of any eventual mineral production
from a property will be subject to the prevailing conditions in the
applicable marketplace at the time of sale. The demand for uranium
and other minerals is subject to global economic activity and
changing attitudes of consumers and other end-users’ demand.
Many of these factors are beyond the control of a mining company
and therefore represent a market risk which could impact the long
term viability of Denison and its operations.
Benefits Not Realized From Transactions
Denison has completed a number of transactions over the last
several years, including without limitation the acquisition of
International Enexco Ltd, the
acquisition of Fission Energy
Corp., the acquisition of
JNR Resources
Inc., the sale of
its mining assets and operations
located in the United States to Energy Fuels
Inc., the sale of its interest in the GSJV, the
Africa Transaction, the optioning of the Moore Lake property to
Skyharbour, the acquisition of
an 80% interest in the Hook-Carter property from ALX, the
acquisition of an interest in the Moon Lake property from
CanAlaska and entering into the
APG Transaction. Despite
Denison’s belief that these transactions, and others which
may be completed in the future, will be in Denison’s best
interest and benefit the Company and Denison’s shareholders
(‘Shareholders’), Denison may not realize the
anticipated benefits of such transactions or realize the full value
of the consideration paid or received to complete the
transactions. This could result
in significant accounting impairments or write-downs of the
carrying values of mineral properties or other assets and could
adversely impact the Company and the price of its
Shares.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Volatility and Sensitivity to Market Prices
The long and short term market prices of U3O8
affect the value of Denison’s
mineral resources and the market price of the Shares.
Historically, these prices have fluctuated and have been and will
continue to be affected by numerous factors beyond Denison’s
control. Such factors include,
among others: demand for nuclear power, political and economic
conditions in uranium producing and consuming countries, public and
political response to nuclear incidents, reprocessing of used
reactor fuel and the re-enrichment of depleted uranium tails, sales
of excess civilian and military inventories (including from the
dismantling of nuclear weapons) by governments and industry
participants, uranium supplies from other secondary sources, and
production levels and costs of production from primary uranium
suppliers.
Public Acceptance of Nuclear Energy and Competition from Other
Energy Sources
Growth of the uranium and nuclear power industry will depend upon
continued and increased acceptance of nuclear technology as a clean
means of generating electricity. Because of unique political,
technological and environmental factors that affect the nuclear
industry, including the risk of a nuclear incident, the industry is
subject to public opinion risks that could have an adverse impact
on the demand for nuclear power and increase the regulation of the
nuclear power industry. Nuclear energy competes with
other sources of energy, including oil, natural gas, coal and
hydro-electricity. These other energy sources
are,
to some
extent,
interchangeable with
nuclear energy, particularly over the longer term.
Technical
advancements in, and historically large
government subsidies for, renewable and other alternate
forms of energy, such as wind and solar power, could make these
forms of energy more commercially viable and put additional
pressure on the demand for uranium concentrates.
Sustained lower
prices of alternate forms of energy may
result in lower demand for uranium concentrates.
Current estimates project significant increases in the
world’s nuclear power generating capacities, primarily as a
result of a significant number of nuclear reactors that are under
construction, planned, or proposed in China, India and various
other countries around the world. Market projections for future
demand for uranium are based on various assumptions regarding the
rate of construction and approval of new nuclear power plants, as
well as continued public acceptance of nuclear energy around the
world. The rationale for adopting nuclear energy can be varied, but
often includes the clean and environmentally friendly operation of
nuclear power plants, as well as the affordability and
round-the-clock reliability of nuclear power. A change in public
sentiment regarding nuclear energy could have a material impact on
the number of nuclear power plants under construction, planned or
proposed, which could have a material impact on the market’s
and the Company’s expectations for the future demand for
uranium and the future price of uranium.
Market Price of Shares
Securities of mining companies have experienced substantial
volatility in the past, often based on factors unrelated to the
financial performance or prospects of the companies
involved. These factors include
macroeconomic conditions in North America and globally, and market
perceptions of the attractiveness of particular industries.
The price of Denison's securities is
also likely to be significantly affected by short-term changes in
commodity prices, other mineral prices, currency exchange
fluctuation, or changes in its financial condition or results of
operations as reflected in its periodic earnings reports and/or
news releases. Other factors unrelated to the performance of
Denison that may have an effect on the price of the securities of
Denison include the following: the extent of analytical coverage
available to investors concerning the business of Denison;
lessening in trading volume and general market interest in
Denison's securities; the size of Denison's public float and its
inclusion in market indices may limit the ability of some
institutions to invest in Denison's securities; and a substantial
decline in the price of the securities of Denison that persists for
a significant period of time could cause Denison's securities to be
delisted from an exchange. If an active market for the securities
of Denison does not continue, the liquidity of an investor's
investment may be limited and the price of the securities of the
Company may decline such that investors may lose their entire
investment in the Company. As a
result of any of these factors, the market price of the securities
of Denison at any given point in time may not accurately reflect
the long-term value of Denison. Securities class-action litigation often has been
brought against companies following periods of volatility in the
market price of their securities. Denison may in the future be the target of similar
litigation. Securities litigation could result in substantial costs
and damages and divert management's attention and
resources.
Dilution from Further Equity Financing
While active in exploring for new uranium discoveries in the
region, Denison’s present focus is on advancing the Wheeler
River project to a development decision, with the potential to
become the next large scale uranium producer in Canada. Denison
will require additional funds to further such activities.
If Denison raises additional funding
by issuing additional equity
securities, such financing would substantially dilute the interests of
Shareholders and reduce the value of
their investment.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Reliance on Other Operators
At some of its properties, Denison is not the operator and
therefore is not in control of all of the activities and operations
at the site. As a result,
Denison is and will be, to a certain extent, dependent on the
operators for the nature and timing of activities related to these
properties and may be unable to direct or control such
activities.
As an example, Orano
Canada is the operator and majority
owner of the McClean
Lake and Midwest joint
ventures in Saskatchewan, Canada. The McClean Lake mill
employs unionized workers who work under collective
agreements. Orano
Canada, as the operator, is
responsible for most
operational and production decisions and all dealings with unionized employees.
Orano Canada may not be successful in its attempts to
renegotiate the collective agreements, which may impact mill and
mining operations. Similarly, Orano Canada
is responsible for all licensing and dealings with various
regulatory authorities. Any
lengthy work stoppages,
or disruption to the operation of the
mill or mining operations as a result of a licensing matter or
regulatory compliance may have a material adverse impact on the
Company’s future cash flows, earnings, results of operations
and financial condition.
Reliance on Contractors and Experts
In various aspects of its operations, Denison relies on the
services, expertise and recommendations of its service providers
and their employees and contractors, whom often are engaged at
significant expense to the Company. For example, the decision as to
whether a property contains a commercial mineral deposit and should
be brought into production will depend in large part upon the
results of exploration programs and/or feasibility studies, and the
recommendations of duly qualified third party engineers and/or
geologists. In addition, while Denison emphasizes the importance of
conducting operations in a safe and sustainable manner, it cannot
exert absolute control over the actions of these third parties when
providing services to Denison or otherwise operating on
Denison’s properties. Any material error, omission, act of
negligence or act resulting in environmental pollution, accidents
or spills, industrial and transportation accidents, work stoppages
or other actions could seriously adversely affect the
Company’s operations and financial condition.
Property Title Risk
The Company has investigated its rights to explore and exploit all
of its material properties and, to the best of its knowledge, those
rights are in good standing. However, no assurance can be given that such
rights will not be revoked, or significantly altered, to its
detriment. There can also be no
assurance that the Company’s rights will not be challenged or
impugned by third parties, including the Canadian,
provincial,
and local governments, as well
as by First Nations and Métis.
There is also a risk that Denison's title to, or interest in, its
properties may be subject to defects or challenges. If such
defects or challenges
cover a material portion of Denison's
property, they could materially and adversely affect Denison's
results of operations and financial condition, its reported mineral
reserves and resources or its long -term business
prospects.
Competition for Properties
Significant competition exists for the limited supply of mineral
lands available for acquisition. Many participants in the mining
business include large,
established companies with long
operating histories. The
Company may be at a disadvantage in acquiring new properties as
competitors may have greater financial resources and more technical
staff. Accordingly, there can
be no assurance that the Company will be able to compete
successfully to acquire new properties or that any such acquired
assets would yield resources or reserves or result in commercial
mining operations.
Global Financial Conditions
Global financial conditions continue to be subject to volatility
arising from international geopolitical developments and global
economic phenomenon, as well as general financial market
turbulence. Access to public
financing and credit can be negatively impacted by the effect of
these events on Canadian and global credit markets.
The health of the global financing and
credit markets may impact the ability of Denison to obtain equity
or debt financing in the future and the terms at which financing or
credit is available to Denison. These increased levels of volatility and market
turmoil could adversely impact Denison's operations and the trading
price of the
Shares.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Ability to Maintain Obligations
under the 2018 Credit Facility
and Other Debt
Denison is required to satisfy certain financial covenants in order
to maintain its good standing under the 2018 Credit
Facility. Denison is also
subject to a number of restrictive covenants under the APG
Transaction. Denison may from
time to time enter into other arrangements to borrow money in order
to fund its operations and expansion plans, and such arrangements
may include covenants that have similar obligations or that
restrict its business in some way. Events may occur in the future, including events
out of Denison's control, which
could cause Denison to fail to
satisfy its obligations under the 2018 Credit Facility, APG Transaction or other
debt instruments. In such
circumstances, the amounts drawn under Denison's debt agreements
may become due and payable before the agreed maturity date, and
Denison may not have the financial resources to repay such amounts
when due. The 2018
Credit Facility and APG Transaction
are secured by DMI's main properties by a pledge of the shares of
DMI. If Denison were to default
on its obligations under the 2018 Credit
Facility, APG Transaction or other secured debt instruments in the
future, the lender(s) under such debt instruments could enforce
their security and seize significant portions of Denison's
assets.
Change of Control Restrictions
The APG Transaction and certain other of Denison’s agreements
contain provisions that could adversely impact Denison in the case
of a transaction that would result in a change of control of
Denison or certain of its subsidiaries. In the event that consent is required from our
counterparty and our counterparty chooses to withhold its consent
to a merger or acquisition, then such party could seek to terminate
certain agreements with Denison, including certain agreements
forming part of the APG Transaction, or require
Denison to buy the counterparty’s rights back from them,
which could adversely affect Denison’s financial resources
and prospects. If applicable, these restrictive contractual
provisions could delay or discourage a change in control of our
company that could otherwise be beneficial to Denison or its
shareholders.
Capital Intensive Industry and Uncertainty of Funding
The exploration and development of mineral properties and the
ongoing operation of mines and
facilities requires a
substantial amount of capital and may depend on Denison’s
ability to obtain financing through joint ventures, debt financing,
equity financing or other means. General market conditions, volatile uranium
markets, a claim against the Company, a significant disruption to
the Company’s business or operations or other factors may
make it difficult to secure financing necessary to fund additional exploration of the
Company’s projects or to
take advantage of opportunities for acquisitions.,
or for the substantial capital that is typically required in order
to bring a mineral project, such as the Wheeler River project, to a
production decision or to place a property, such as the Wheeler
River project, into commercial production. There is no assurance that the Company will be
successful in obtaining required financing as and when needed on
acceptable terms, and failure
to obtain such additional financing could result in the delay or
indefinite postponement of the Company’s exploration,
development or other growth objectives.
Decommissioning and Reclamation
As owner of the Elliot Lake decommissioned sites and part owner of
the McClean Lake mill, McClean Lake mines, the Midwest uranium
project and certain exploration properties, and for so long as the
Company remains an owner thereof, the Company is obligated to
eventually reclaim or participate in the reclamation of such
properties. A large part, but
not all, of the Company’s reclamation obligations are
secured, and cash and other assets of the Company have been
reserved to secure this obligation. Although the Company’s financial statements
record a liability for the asset retirement obligation, and the
bonding requirements are generally periodically reviewed by
applicable regulatory authorities, there can be no assurance or
guarantee that the ultimate cost of such reclamation obligations
will not exceed the estimated liability contained on the
Company’s financial statements.
As Denison’s properties approach or go into decommissioning,
regulatory review of the Company’s decommissioning plans may
result in additional decommissioning requirements, associated costs
and the requirement to provide additional financial assurances. It
is not possible to predict what level of decommissioning and
reclamation (and financial assurances relating thereto) may be
required from Denison in the future by regulatory
authorities.
Technical Innovation and Obsolescence
Requirements for Denison’s products and services may be
affected by technological changes in nuclear reactors, enrichment
and used uranium fuel reprocessing. These technological changes could reduce the
demand for uranium or reduce the value of Denison’s
environmental services to potential customers. In addition, Denison’s competitors may adopt
technological advancements that give them an advantage over
Denison.
MANAGEMENT’S
DISCUSSION & ANALYSIS
|
Mining and Insurance
Denison’s business is capital intensive and subject to a
number of risks and hazards, including environmental pollution,
accidents or spills, industrial and transportation accidents,
labour disputes, changes in the regulatory environment, natural
phenomena (such as inclement weather conditions, earthquakes, pit
wall failures and cave-ins) and encountering unusual or unexpected
geological conditions. Many of
the foregoing risks and hazards could result in damage to, or
destruction of, Denison’s mineral properties or processing
facilities in which it has an
interest, personal injury or
death, environmental damage, delays in or interruption of or
cessation of production or processing in Denison’s exploration or development
activities, or costs, monetary
losses and potential legal liability and adverse governmental
action. In addition, due to the
radioactive nature of the materials handled in uranium
exploration, mining and processing, as applicable, additional costs and risks are incurred by
Denison and its joint venture
partners on a regular and
ongoing basis.
Although Denison maintains insurance to cover some of these risks
and hazards in amounts it believes to be reasonable, such insurance
may not provide adequate coverage in the event of certain
circumstances. No assurance can be given that such insurance will
continue to be available, that it will be available at economically
feasible premiums,
or that it will provide sufficient
coverage for losses related to these or other risks and
hazards.
Denison may be subject to liability or sustain loss for certain
risks and hazards against which it cannot insure or which it may
reasonably elect not to insure because of the cost. This lack of
insurance coverage could result in material economic harm to
Denison.
Dependence on Issuance of
Licence Amendments and Renewals
Orano Canada maintains the
regulatory licences
in order to operate the McClean Lake
mill, all of which are subject to renewal from time to time and are
required in order for the mill to operate in compliance with
applicable laws and regulations. In addition, depending on Orano Canada’s or the Company’s business
requirements, it may be necessary or desirable to seek amendments
to one or more of its licences from
time to time. While
Orano Canada and the Company have been successful in
renewing its licences
on a timely basis in the past and in
obtaining such amendments as have been necessary or desirable,
there can be no assurance that such licence renewals and amendments will be issued by
applicable regulatory authorities on a timely basis or at all in
the future.
Governmental Regulation and Policy Risks
Uranium mining and milling operations and exploration activities,
as well as the transportation and handling of the products
produced, are subject to extensive regulation by
federal, provincial and state governments. Such regulations relate to production,
development, exploration, exports, imports, taxes and royalties,
labour standards, occupational health, waste disposal, protection
and remediation of the environment, mine decommissioning and
reclamation, mine safety, toxic substances, transportation safety
and emergency response, and other matters. Compliance with such
laws and regulations is
currently, and has historically, increased the costs of exploring, drilling,
developing, constructing, operating and closing Denison’s
mines and processing facilities. It is possible that, in the future, the costs,
delays and other effects associated with such laws and regulations
may impact Denison’s decision with respect to exploration and
development properties, including whether to proceed with exploration or
development, or that such laws and regulations may result in
Denison incurring significant costs to remediate or decommission
properties that do not comply with applicable environmental
standards at such time. Denison
expends significant financial and managerial resources to comply
with such laws and regulations. Denison anticipates it will have to continue to do
so as the historic trend toward stricter government regulation may
continue. Because legal
requirements are frequently changing and subject to interpretation,
Denison is unable to predict the ultimate cost of compliance with
these requirements or their effect on operations.
Furthermore, future changes in
governments, regulations and policies, such as those affecting
Denison’s mining operations and uranium transport could
materially and adversely affect Denison’s results of
operations and financial condition in a particular period or its
long-term business prospects.
Failure to comply with applicable laws, regulations and permitting
requirements may result in enforcement actions. These actions may result in orders issued by
regulatory or judicial authorities causing operations to cease or
be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment or remedial
actions. Companies engaged in
uranium exploration operations may be required to compensate others
who suffer loss or damage by reason of such activities and may have
civil or criminal fines or penalties imposed for violations of
applicable laws or regulations.
The development of mines and related facilities is contingent upon
governmental approvals that are complex and time consuming to
obtain and which, depending upon the location of the project,
involve multiple governmental agencies. The duration and success of such approvals are
subject to many variables outside Denison’s control. Any
significant delays in obtaining or renewing such permits or
licences in the future could have a material adverse effect
on Denison.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
Global Demand and International Trade Restrictions
The international uranium industry, including the supply of uranium
concentrates, is relatively small compared to other minerals,
competitive and heavily regulated. Worldwide demand for uranium is directly tied to
the demand for electricity produced by the nuclear power industry,
which is also subject to extensive government regulation and
policies. In addition, the
international marketing of uranium is subject to governmental
policies and certain trade restrictions. The supply and marketing of uranium from Russia
and from certain republics of the former Soviet Union is, to some
extent, impeded by a number of international trade agreements and
policies. These agreements and any similar future agreements,
governmental policies or trade restrictions are beyond the control
of Denison and may affect the supply of uranium available in the
United States and Europe, which are currently the largest markets
for uranium in the world, as well as the future of supply to
developing markets, such as China and India. If substantial changes
are made to the regulations affecting global marketing and supply,
the Company’s business, financial condition and results of
operations may be materially adversely
affected.
Environmental, Health and Safety Risks
Denison has expended significant financial and managerial resources
to comply with environmental protection laws, regulations and
permitting requirements in each jurisdiction where it operates, and
anticipates that it will be required to continue to do so in the
future as the historical trend toward stricter environmental
regulation may continue. The
uranium industry is subject to, not only the worker health, safety
and environmental risks associated with all mining businesses,
including potential liabilities to third parties for environmental
damage, but also to additional risks uniquely associated with
uranium mining and processing. The possibility of more stringent
regulations exists in the areas of worker health and safety, the
disposition of wastes, the decommissioning and reclamation of
mining and processing sites, and other environmental matters each
of which could have a material adverse effect on the costs or the
viability of a particular project.
Denison’s facilities operate under various operating and
environmental permits, licences and
approvals that contain conditions that must be met, and
Denison’s right to continue operating its facilities is, in a
number of instances, dependent upon compliance with such
conditions. Failure to meet any such condition could have a
material adverse effect on Denison’s financial condition or
results of operations.
Although the Company believes its operations are in compliance, in
all material respects, with all relevant permits,
licences and regulations involving worker health and safety
as well as the environment, there can be no assurance regarding
continued compliance or ability of the Company to meet stricter
environmental regulation, which may also require the expenditure of
significant additional financial and managerial
resources.
Mining companies are often targets of actions by non-governmental
organizations and environmental groups in the jurisdictions in
which they operate. Such
organizations and groups may take actions in the future to disrupt
Denison's operations. They may
also apply pressure to local, regional and national government
officials to take actions which are adverse to Denison's
operations. Such actions could
have an adverse effect on Denison's ability to produce and sell its
products, and on its financial position and
results.
Aboriginal Title and Consultation Issues
First Nations and Métis title claims as well as related
consultation issues may impact Denison’s ability and that of
its joint venture partners to pursue exploration, development and
mining at its Saskatchewan properties. Pursuant to historical
treaties, First Nations bands in Northern Saskatchewan ceded title
to most traditional lands but continue to assert title to the
minerals within the lands. Managing relations with the local native
bands is a matter of paramount importance to Denison. There may be
no assurance, however,
that title claims as well as related
consultation issues will not arise on or with respect to the
Company’s properties.
Anti-Bribery and Anti-Corruption Laws
The Company is subject to anti-bribery and anti-corruption laws,
including the Corruption of Foreign Public Officials Act
(Canada). Failure to comply
with these laws could subject the Company to, among other things,
reputational damage, civil or criminal penalties, other remedial
measures and legal expenses which could adversely affect the
Company’s business, results from operations, and financial
condition. It may not be
possible for the Company to ensure compliance with anti-bribery and
anti-corruption laws in every jurisdiction in which its employees,
agents, sub-contractors or joint venture partners are located or
may be located in the future.
MANAGEMENT’S DISCUSSION &
ANALYSIS
|
Climate Change
Due to changes in local and global climatic conditions, many
analysts and scientists predict an increase in the frequency of
extreme weather events such as floods, droughts, forest and brush
fires and extreme storms. Such events could materially disrupt the
Company’s operations, particularly if they affect the
Company’s sites, impact local infrastructure or threaten the
health and safety of the Company’s employees and contractors.
In addition, reported warming trends could result in later
freeze-ups and warmer lake temperatures, affecting the
Company’s winter exploration programs at certain of its
material projects. Any of such events could result in material
economic harm to Denison.
Increased environmental regulation and/or the use of fiscal policy
by regulators in response to concerns over climate change and other
environmental impacts, such as additional taxes levied on
activities deemed harmful to the environment, could have a material
adverse effect on Denison’s financial condition or results of
operations.
Information Systems and Cyber Security
The Company's operations depend upon the availability, capacity,
reliability and security of its information technology (IT)
infrastructure, and its ability to expand and update this
infrastructure as required, to conduct daily operations.
Denison relies on various IT systems
in all areas of its operations, including financial reporting,
contract management, exploration and development data analysis,
human resource management, regulatory compliance and communications
with employees and third parties.
These IT systems could be subject to network disruptions caused by
a variety of sources, including computer viruses, security breaches
and cyber-attacks, as well as network and/or hardware disruptions
resulting from incidents such as unexpected interruptions or
failures, natural disasters, fire, power loss, vandalism and theft.
The Company's operations also depend on the timely maintenance,
upgrade and replacement of networks, equipment, IT systems and
software, as well as pre-emptive expenses to mitigate the risks of
failures.
The ability of the IT function to support the Company’s
business in the event of any such occurrence and
the ability to recover key systems from unexpected interruptions
cannot be fully tested. There is a risk that, if such an event
actually occurs, the Company’s continuity plan may not be
adequate to immediately address all repercussions of the disaster.
In the event of a disaster affecting a data centre or key office
location, key systems may be unavailable for a number of days,
leading to inability to perform some business processes in a timely
manner. As a result, the
failure of Denison’s IT systems or a component thereof could,
depending on the nature of any such failure, adversely impact the
Company's reputation and results of operations.
Although to date the Company has not experienced any material
losses relating to cyber- attacks
or other information security breaches, there can be no assurance
that the Company will not incur such losses in the future.
Unauthorized access to Denison’s IT systems by employees or
third parties could lead to corruption or exposure of confidential,
fiduciary or proprietary information, interruption to
communications or operations or disruption to the Company’s
business activities or its competitive position. Further,
disruption of critical IT services, or breaches of information
security, could have a negative effect on the Company’s
operational performance and its reputation. The Company's risk and exposure to these matters
cannot be fully mitigated because of, among other things, the
evolving nature of these threats. As a result, cyber security and
the continued development and enhancement of controls, processes
and practices designed to protect systems, computers, software,
data and networks from attack, damage or unauthorized access remain
a priority.
The Company applies technical and process controls in line with
industry-accepted standards to protect information, assets and
systems; however these controls may not adequately prevent
cyber-security breaches. There is no assurance that the Company
will not suffer losses associated with cyber-security breaches in
the future, and may be required to expend significant additional
resources to investigate, mitigate and remediate any potential
vulnerabilities. As cyber
threats continue to evolve, the Company may be required to expend
additional resources to continue to modify or enhance protective
measures or to investigate and remediate any security
vulnerabilities.
Dependence on Key Personnel and Qualified and Experienced
Employees
Denison’s success depends on the efforts and abilities of
certain senior officers and key employees. Certain of Denison’s employees have
significant experience in the uranium industry, and the number of
individuals with significant experience in this industry is small.
While Denison does not foresee any reason why such officers and key
employees will not remain with Denison, if for any reason they do
not, Denison could be adversely affected. Denison has not purchased
key man life insurance for any of these individuals.
Denison’s success also depends
on the availability of qualified and experienced employees to work
in Denison’s operations and Denison’s ability to
attract and retain such employees.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
Conflicts of Interest
Some of the directors and officers of Denison are also directors of
other companies that are similarly engaged in the business of
acquiring, exploring and developing natural resource properties.
Such associations may give rise to conflicts of interest from time
to time. In particular, one of
the consequences would be that corporate opportunities presented to
a director or officer of Denison may be offered to another company
or companies with which the director or officer is
associated, and may not be presented or made available to
Denison. The directors
and officers of Denison are required by law to act honestly and
in good faith with a view to the best interests of Denison, to
disclose any interest which they may have in any project or
opportunity of Denison, and,
where applicable for directors, to abstain from voting on such matter.
Conflicts of interest that arise will
be subject to and governed by the procedures prescribed in the
Company’s Code of Ethics and by the Ontario Business Corporations Act
(‘OBCA’).
Disclosure and Internal Controls
Internal controls over financial reporting are procedures designed
to provide reasonable assurance that transactions are properly
authorized, assets are safeguarded against unauthorized or improper
use, and transactions are properly recorded and reported.
Disclosure controls and procedures are
designed to ensure that information required to be disclosed by a
company in reports filed with securities regulatory agencies is
recorded, processed, summarized and reported on a timely basis and
is accumulated and communicated to the company’s management,
including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure. A control system,
no matter how well designed and operated, can provide only
reasonable, not absolute, assurance with respect to the reliability
of reporting, including financial reporting and financial statement
preparation.
Potential Influence of KEPCO and KHNP
Effective December 2016, KEPCO transferred the majority of its
interest in Denison to KEPCO’s subsidiary, KHNP. Denison and
KHNP subsequently entered into the KHNP SRA (on substantially
similar terms as the original strategic relationship agreement
between Denison and KEPCO), pursuant
to which KHNP Canada is
contractually entitled to Board representation. Provided KHNP
Canada holds over 5% of
the Shares, it is entitled to nominate one director for
election to the Board at any Shareholder
meeting.
KHNP Canada’s
shareholding level gives it a large vote on decisions to be made by
shareholders of Denison, and its right to nominate a director may
give KHNP Canada
influence on decisions made by
Denison's Board. Although KHNP Canada’s
director nominee will be subject to duties under the OBCA to act in
the best interests of Denison as a whole, such director nominee is
likely to be an employee of KHNP and he or she may give special attention
to KHNP’s
or KEPCO’s interests as indirect Shareholders. The interests of KHNP and KEPCO, as
indirect Shareholders,
may not always be consistent with the
interests of other
Shareholders.
The KHNP SRA
also includes provisions
granting KHNP Canada
a right of first offer for certain
asset sales and the right to be approached to participate in
certain potential acquisitions. The right of first offer and participation right
of KHNP Canada
may negatively affect Denison's
ability or willingness to entertain certain business opportunities,
or the attractiveness of Denison as a potential party for certain
business transactions. KEPCO'’s
large indirect
shareholding block may also make
Denison less attractive to third parties considering an acquisition
of Denison if those third parties are not able to negotiate terms
with KEPCO or KHNP
Canada to support such an
acquisition.
QUALIFIED PERSON
The
disclosure regarding the Evaluation Program at Wheeler River,
including the PEA, was reviewed and approved by Peter Longo, P.
Eng, MBA, PMP, Denison’s Vice-President, Project Development,
who is a Qualified Person in accordance with the requirements of NI
43-101. The balance of the disclosure of scientific and technical
information regarding Denison’s properties in the MD&A
was prepared by or reviewed by Dale Verran, MSc, Pr.Sci.Nat., the
Company’s Vice President, Exploration, a Qualified Person in
accordance with the requirements of NI 43-101. For a description of
the quality assurance program and quality control measures applied
by Denison, please see Denison’s Annual Information Form
dated March 23, 2017 available under Denison's profile on SEDAR at
www.sedar.com, and its Form 40-F available on EDGAR at www.sec.gov/edgar.shtml.
MANAGEMENT’S DISCUSSION & ANALYSIS
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
Certain
information contained in this MD&A constitutes
‘forward-looking information’, within the meaning of
the United States Private Securities Litigation Reform Act of 1995
and similar Canadian legislation concerning the business,
operations and financial performance and condition of
Denison.
Generally,
these forward-looking statements can be identified by the use of
forward-looking terminology such as ‘plans’,
‘expects’, ‘budget’,
‘scheduled’, ‘estimates’,
‘forecasts’, ‘intends’,
‘anticipates’, or ‘believes’, or the
negatives and/or variations of such words and phrases, or state
that certain actions, events or results ‘may’,
‘could’, ‘would’, ‘might’ or
‘will be taken’, ‘occur’, ‘be
achieved’ or ‘has the potential to’.
In
particular, this MD&A contains forward-looking information
pertaining to the following: the benefits to be derived from
corporate transactions including the potential for receipt of any
contingent payments; use of proceeds of financing activities; the
estimates of Denison's mineral reserves and mineral resources;
exploration, development and expansion plans and objectives,
including the results of the PEA, the completion of the PFS, and
statements regarding anticipated budgets, fees and expenditures;
expectations regarding Denison’s joint venture ownership and
other contractual interests in its properties and projects and the
continuity of its agreements with its partners and other
counterparties; expectations regarding adding to its mineral
reserves and resources through acquisitions and exploration;
expectations regarding the toll milling of Cigar Lake ores;
expectations regarding revenues and expenditures from operations at
DES; expectations regarding revenues from the UPC management
contract; capital expenditure programs, estimated exploration and
development expenditures and reclamation costs and Denison's share
of same; expectations of market prices and costs; supply and demand
for uranium; and possible impacts of litigation and regulatory
actions. Statements relating to ‘mineral reserves’ or
‘mineral resources’ are deemed to be forward-looking
information, as they involve the implied assessment, based on
certain estimates and assumptions that the mineral reserves and
mineral resources described can be profitably produced in the
future.
Forward
looking statements are based on the opinions and estimates of
management as of the date such statements are made, and they are
subject to known and unknown risks, uncertainties and other factors
that may cause the actual results, level of activity, performance
or achievements of Denison to be materially different from those
expressed or implied by such forward-looking statements. Denison
believes that the expectations reflected in this forward-looking
information are reasonable but no assurance can be given that these
expectations will prove to be accurate and may differ materially
from those anticipated in this forward looking information. For a
discussion in respect of risks and other factors that could
influence forward-looking events, please refer to the factors
discussed in this MD&A under the heading ‘Risk
Factors’. These factors are not, and should not be construed
as being exhaustive.
Accordingly,
readers should not place undue reliance on forward-looking
statements. The forward-looking information contained in this
MD&A is expressly qualified by this cautionary statement. Any
forward-looking information and the assumptions made with respect
thereto speaks only as of the date of this MD&A. Denison does
not undertake any obligation to publicly update or revise any
forward-looking information after the date of this MD&A to
conform such information to actual results or to changes in
Denison's expectations except as otherwise required by applicable
legislation.
Cautionary Note to United States Investors Concerning Estimates of
Measured, Indicated and Inferred Mineral Resources: This
MD&A may use the terms ‘measured’,
‘indicated’ and ‘inferred’ mineral
resources. United States investors are advised that while such
terms are recognized and required by Canadian regulations, the
United States Securities and Exchange Commission does not recognize
them. ‘Inferred mineral resources’ have a great amount
of uncertainty as to their existence, and as to their economic and
legal feasibility. It cannot be assumed that all or any part of an
inferred mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or other economic
studies. United States investors
are cautioned not to assume that all or any part of measured or
indicated mineral resources will ever be converted into mineral
reserves. United States investors are also cautioned not to assume
that all or any part of an inferred mineral resource exists, or is
economically or legally mineable.
