Denison Mines loses $13.92-million (U.S.) in six months
2015-08-05 17:42 ET - News Release
Mr. David Cates reports
DENISON MINES CORP. REPORTS SECOND QUARTER 2015 RESULTS
Denison Mines Corp. is releasing its results for the six months ended June 30, 2015. All amounts in this release are in U.S. dollars unless otherwise stated.
Highlights:
- Executed agreement with Fission Uranium Corp. to create a Canadian-focused and diversified uranium company. On July 27, 2015, Denison entered into an agreement to combine its business with Fission by way of a court-approved plan of arrangement. The combined company will feature an exploration and development portfolio that will include Fission's 100-per-cent-owned Patterson Lake South project (host to the Triple R deposit) and Denison's 60-per-cent-owned Wheeler River project (which hosts the Phoenix deposit and Gryphon discovery). The combined company will also have a strong exploration foothold in both the historically prolific eastern Athabasca basin and the emergent western Athabasca basin, with a combined land package of over 430,000 hectares and a sizeable base of mineral resources. Under the terms of the arrangement, Fission common shareholders will receive 1.26 common shares of Denison for each common share of Fission held, plus 0.01 Canadian cent per each Fission share in cash. Upon completion of the transaction, the combined company will be named Denison Energy Corp., and will be approximately 50 per cent owned by the existing Denison and Fission shareholders on a fully diluted, in-the-money basis. The company also plans to complete a 1:2 share consolidation upon completion of the transaction. The proposed transaction, name change, share consolidation and shareholder approval are expected to be completed in October, 2015;
- Agreed to the sale of Mongolian interests. On July 29, 2015, Denison entered into a definitive share purchase agreement with Uranium Industry A.S. (UI), of the Czech Republic, whereby UI will acquire all of Denison's interest in mining assets and operations located in Mongolia in exchange for cash consideration of $20-million (the GSJV sale). Pursuant to the terms of the agreement, Denison will receive an initial payment of $250,000 on closing, expected to occur on or about Sept. 8, 2015, and a deferred payment of $19.75-million by Nov. 30, 2015;
- Completed $15-million (Canadian) flow-through financing to finance Canadian exploration activities in 2016. In May 2015, the company completed a private placement offering of 12 million common shares issued on a flow-through basis, at a price of $1.25 (Canadian) per share, for total proceeds to Denison of $15-million (Canadian);
- Stream of toll milling revenue continued to grow in the first half of 2015. The McClean Lake mill, in which Denison holds a 22.5-per-cent interest, packaged approximately 3.1 million pounds U3O8 in the first half of 2015, for the Cigar Lake joint venture (CLJV), generating toll milling revenues for Denison of $900,000. Production ramped up significantly in the early part of the second quarter and is on track to meet the target of six million to eight million packaged pounds of U3O8 this year. The company's share of toll milling revenues for the year is expected to be approximately $2.1-million;
- Continued exploration success at the Wheeler River property. The summer drilling program is currently in progress with 36 drill holes planned, totalling approximately 24,000 metres. The Gryphon zone of uranium mineralization has the potential to add significantly to the estimate of mineral resources at Wheeler River, which already includes the high-grade Phoenix uranium deposit. A total of 14,113 metres of drilling has been completed in 18 drill holes at Wheeler River, to date, as part of the company's summer exploration program. Eight of the drill holes were at the Gryphon zone, and were designed to complete the 50-metre- by 50-metre-spaced drill pattern, and determine the extent of the mineralization in the downdip and downplunge directions. The best result was in drill hole WR-604, which intersected 3.8 per cent eU3O8 over 4.7 metres (779.2 to 783.9 metres), followed by 8.4 per cent eU3O8 over 1.1 metres (790.0 to 791.1 metres), which extended mineralization in the downdip direction. An initial estimate of mineral resources at the Gryphon zone is expected to be prepared before the end of the year;
- Discovered new zone of uranium mineralization at Murphy Lake. The first drill hole of a planned four drill hole program discovered uranium mineralization at Murphy Lake. Drill hole MP-15-03 intersected 0.2 per cent eU3O8 over 6.9 metres (270.0 to 276.9 metres) at the sub-Athabasca unconformity.
FINANCIAL RESULTS (in thousands of dollars, except per-share amounts) Six months ended June 30, June 30, 2015 2014 Results of operations Total revenues $ 5,257 $ 4,532 Net income (loss) $ (13,928) $ (24,231) Basic and diluted earnings (loss) per share $ (0.03) $ (0.05) As at June 30, Dec. 31, 2015 2014 Financial position Cash and cash equivalents $ 14,864 $ 18,640 Short-term investments 8,015 4,381 Long-term investments 463 954 Cash, equivalents and investments 23,342 23,975 Working capital 20,649 22,542 Property, plant and equipment 249,263 270,388 Total assets 287,444 311,330 Total long-term liabilities 38,372 42,291
Revenue
During the first half of 2015, the McClean Lake mill continued to process ore received from the Cigar Lake mine under a toll milling agreement. The mill packaged approximately 3.1 million pounds U3O8 for the CLJV. The company's share of toll milling revenue from processing Cigar Lake ore at the McClean Lake mill, during the three and six months ended June 30, 2015, totalled $718,000 and $922,000, respectively. In 2014, toll milling revenue was only recognized in the fourth quarter, as the first drums of CLJV uranium were packaged in October, 2014.
Revenue from Denison Environmental Services (DES) during the three and six months ended June 30, 2015, was $1,774,000 and $3,414,000, respectively, compared with $1,682,000 and $3,307,000 during the same periods in 2014. In the first half of 2015, DES experienced an increase in Canadian-dollar revenues due to an increase in activity at certain care and maintenance sites, which was largely offset by the unfavourable fluctuation in foreign exchange rates applicable on the translation of revenues earned in Canadian dollars.
Revenue from the company's management contract with Uranium Participation Corporation (UPC) was $437,000 and $921,000 during the three and six months ended June 30, 2015, compared with $676,000 and $1,225,000 for the same periods in 2014. The decrease in revenues during 2015 was due to fewer commissions earned on UPC's purchases of uranium.
Operating expenses
In Canada, McClean Lake comprises several uranium deposits and a high-grade uranium mill, and is located on the eastern edge of the Athabasca basin in Northern Saskatchewan, approximately 750 kilometres north of Saskatoon. The McClean Lake uranium mill is one of the world's largest uranium processing facilities. Expansion of the mill from 13 million to 24 million pounds of annual U3O8 production capacity is continuing, while the mill processes ore from Cigar Lake under a toll milling agreement. Commissioning of the mill up to 18 million pounds of annual U3O8 production capacity has begun and is expected to be completed before the end of 2015. The expansion remains fully financed by the CLJV.
Operating expenses in Canada were $467,000 and $666,000 during the three and six months ended June 30, 2015, compared with $116,000 and $257,000 in the same periods in 2014. Most of the operating expenses are attributable to activity involving the MLJV. Operating costs were higher during 2015 primarily due to depreciation of mill capital assets, as a result of processing the Cigar Lake ore at the McClean Lake mill.
In Africa, operating expenses during the three and six months ended June 30, 2015, totalled $102,000 and $162,000, respectively. During the same periods in 2014, operating expenses totalled $490,000 and $1,185,000. The majority of operating expenses relate to costs incurred on the Falea project in Mali. The higher operating expenses in the first half of 2014 related to engineering studies, metallurgical test work programs and environmental programs that were completed, following the acquisition of the Falea project.
Operating expenses during the three and six months ended June 30, 2015, include costs relating to DES totalling $1,628,000 and $3,204,000, respectively, compared with $1.62-million and $3,203,000 in the same periods in 2014. During the first half of 2015, DES experienced an increase in Canadian-dollar operating expenses due to an increase in activity at certain care and maintenance sites, which was largely offset by the favourable fluctuation in foreign exchange rates applicable on the translation of expenses denominated in Canadian dollars.
Mineral property exploration
Denison is engaged in uranium exploration and evaluation in Canada, Zambia, Mali, Namibia and Mongolia. While the company has material interests in uranium projects in Asia and Africa, the company is focused primarily on the eastern Athabasca basin, in Saskatchewan, Canada, with numerous projects totalling over 400,000 hectares. Global exploration expenditures were $3,011,000 and $9,146,000 during the three and six months ended June 30, 2015, with over 90 per cent of exploration expenditures being incurred in Canada. Global exploration expenditures totalled $3,588,000 and $10,185,000 during the same periods in 2014. The decrease in global exploration expenditures during the first half of 2015 is mainly due to the favourable fluctuation in foreign exchange rates applicable on the translation of expenses denominated in Canadian dollars.
Denison's share of exploration spending on its Canadian properties was $2,732,000 and $8,254,000 during the three and six months ended June 30, 2015, as compared with $3.24-million and $9,494,000 during the same periods in 2014. Exploration spending in Canada is seasonal, with spending higher during the winter drilling programs (January to mid-April) and summer drilling programs (June to mid-October) in the Athabasca basin.
Denison's share of exploration costs at Wheeler River amounted to $1,022,000 and $2,775,000, respectively, during the three and six months ended June 30, 2015, compared with $938,000 and $2,786,000 in the same periods in 2014. During the second quarter of 2015, six drill holes were completed at Wheeler River as part of the summer program. Two of the drill holes were completed at the Phoenix North area and did not return significant mineralization. The other four were drilled in the Gryphon area.
A total of 14,113 metres of drilling has been completed in 18 drill holes at Wheeler River, to date, as part of the company's summer exploration program. Eight of the drill holes were at the Gryphon zone, and were designed to complete the 50-metre- by 50-metre-spaced drill pattern, and determine the extent of the mineralization in the downdip and downplunge directions. The best result was in drill hole WR-604, which intersected 3.8 per cent eU3O8 over 4.7 metres (779.2 to 783.9 metres), followed by 8.4 per cent eU3O8 over 1.1 metres (790.0 to 791.1 metres), which extended mineralization in the downdip direction. An initial estimate of mineral resources at the Gryphon zone is expected to be prepared before the end of the year.
During the second quarter of 2015, exploration activity on other projects included a DC resistivity geophysical survey at Crawford Lake, and drilling programs at Jasper Lake, Stevenson River and Bell Lake. At Jasper Lake and Stevenson River, a total of 2,246 metres of drilling was completed in 10 drill holes. No significant mineralization was intersected at these projects.
Subsequent to the first half of 2015, the first drill hole of a planned four drill hole program at Murphy Lake successfully intersected a new zone of uranium mineralization. Drill hole MP-15-03 intersected 0.2 per cent eU3O8 over 6.9 metres (270.0 to 276.9 metres) at the sub-Athabasca unconformity. Mineralization is associated with a zone of strong sandstone alteration, including desilicification and clay over a hematite cap. Three additional drill holes have been completed to follow up on the mineralization in MP-15-03. While none of the holes intersected mineralization, alteration and structure suggest a highly prospective system which is open to the west and likely to the east. The summer drilling program for 2015 is complete and follow-up drilling is being planned for January, 2016. Murphy Lake is located approximately 30 kilometres northwest of the McClean Lake mill and is a joint venture with Anthem Resources Inc. (41.06-per-cent interest). The 2015 program at Murphy Lake is being fully financed by Denison as a result of Anthem's choice to dilute its interest.
Exploration activity in Africa for 2015 is designed to maintain the company's claims in good standing, while advancing the exploration potential of its assets, as part of a strategy to pursue a spin-out or disposal transaction when market conditions permit.
Exploration expenditures in Mongolia were primarily related to annual licence payments, required to maintain the Gurvan Saihan joint venture properties in good standing while the company continued to explore strategic alternatives regarding its ownership interest in the GSJV. On July 29, 2015, the company entered into a binding agreement with UI, a Czech Republic entity, to dispose of its 85-per-cent interest in the GSJV.
General and administrative
Total general and administrative expenses were $1,741,000 and $3,337,000 during the three and six months ended June 30, 2015, compared with $2,103,000 and $4,506,000 during the same periods in 2014. These costs mainly comprise head office salaries and benefits, office costs in multiple regions, 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. General and administrative expenses decreased in the first half of 2015, mainly as a result of lower office expenses and special projects costs, as well as a favourable fluctuation in foreign exchange rates applicable on the translation of Canadian dollar expenses.
Other income and expenses
The company recognized other income of $420,000 and other expenses of $4.86-million during the three and six months ended June 30, 2015, respectively, compared with other expenses of $6,009,000 and $9,411,000 during the same periods in 2014. The decrease in other expenses during 2015 is primarily due to a decrease in foreign exchange losses due to favourable fluctuations in foreign exchange rates.
Liquidity and capital resources
Cash and cash equivalents were $14,864,000 at June 30, 2015, compared with $18.64-million at Dec. 31, 2014. The decrease of $3,776,000 was primarily due to net cash used in operations of $9,054,000, net cash used in investing activities of $5,258,000 and a net foreign exchange loss of $1,185,000 on the translation of currency balances at period-end, partly offset by net cash provided by financing activities of $11,721,000.
Net cash used in operating activities of $9,054,000 during the six months ended June 30, 2015, comprises a net loss for the period adjusted for non-cash items and changes in working capital items.
Net cash used in investing activities of $5,258,000 consists primarily of cash used to purchase investments of $8,134,000, and property, plant and equipment of $855,000, partly offset by cash provided by the maturity of investments in debt instruments and the sale of investments in equity instruments totalling $4,033,000.
Net cash provided by financing activities of $11,721,000 largely reflects net proceeds received on the issuance of flow-through common shares. On May 26, 2015, the company closed a $15-million (Canadian) private placement for the issuance of 12 million flow-through common shares at a price of $1.25 (Canadian) per share. The proceeds will be used to finance the company's Canadian exploration programs through to the end of 2016. As at June 30, 2015, the company has not incurred any expenditures toward the spending obligation associated with the financing. Other financing activities included proceeds received from the issuance of common shares on the exercise of stock options and warrants for a total of $411,000.
As at June 30, 2015, the company estimates it has spent $10,671,000 (Canadian) on eligible Canadian exploration expenses toward its obligation under the flow-through share financing completed in August, 2014, for gross proceeds of $14,997,000 (Canadian). The remaining balance of $4,326,000 (Canadian) is expected to be incurred before Dec. 31, 2015.
The company holds a large majority of its cash in Canadian-dollar-denominated bank accounts. As at June 30, 2015, the company's cash and cash equivalents amount to $18,566,000 (Canadian).
Revolving term credit facility
On Jan. 30, 2015, the company entered into an agreement with Bank of Nova Scotia to amend the terms of a revolving term credit facility entered into in 2014, and to extend the maturity date to Jan. 31, 2016. Under the amended agreement, the company has access to credit of up to $24-million (Canadian). Use of the facility remains restricted to non-financial letters of credit in support of reclamation obligations.
Outstanding share data
At Aug. 5, 2015, there were 518,438,669 common shares issued and outstanding, stock options outstanding for 7,194,085 Denison common shares, and warrants outstanding for 188,066 Denison common shares, for a total of 525,820,820 common shares on a fully diluted basis.
Outlook for 2015
The company has completed a successful winter exploration program in Canada and resumed drilling during the first week of June, 2015, as part of a summer exploration program focused on advancing certain high-priority projects. In general, the company's exploration, development and operation plans for 2015 remain unchanged at the end of the first half of the year. The outlook for the remainder of the year, however, will change as a result of the arrangement agreement executed with Fission. The impact of the arrangement has not yet been factored into the outlook for 2015.
Given the significant devaluation of the Canadian dollar in the first quarter of 2015, the company's previous outlook includes revisions to its budgeted U.S.-dollar to Canadian-dollar foreign exchange rate to 1.24, from 1.12. The current outlook has been revised to reflect additional spending in Mongolia incurred in connection with the GSJV sale.
OUTLOOK (in thousands of dollars) Previous Current Actual to outlook outlook June 30, 2015 2015 2015 Canada Mineral sales and toll milling revenue $ 3,200 $ 3,200 $ 914 Mineral property exploration (12,890) (12,890) (8,514) Development and operations (1,620) (1,620) (485) ------------ ------------ ------------ (11,310) (11,310) (8,085) Africa Zambia and Mali (2,340) (2,340) (1,185) ------------ ------------ ------------ (2,340) (2,340) (1,185) Asia Mongolia (725) (1,200) (851) ------------ ------------ ------------ (725) (1,200) (851) Other activities UPC management 1,680 1,680 837 DES environmental services 150 150 25 Corporate general and administration (4,150) (4,150) (2,389) ------------ ------------ ------------ (2,320) (2,320) (1,527) ------------ ------------ ------------ Total $ (16,695) $ (17,170) $ (11,648) ============ ============ ============
Canada
Mineral property exploration
The 2015 budget for the Canadian exploration program is approximately $23.1-million (Canadian), of which Denison's share is expected to be $15.8-million (Canadian). Denison's exploration expenditures for 2015 are largely being financed by the proceeds from the company's flow-through share offering completed in August, 2014, which raised $15.0-million (Canadian).
An aggressive summer exploration campaign began in early June and includes drilling programs on eight properties, all of which are operated by Denison, namely Wheeler River, Bell Lake, Murphy Lake, Waterbury Lake, Jasper Lake, Stevenson River, South Dufferin and Crawford Lake.
Wheeler River
The 2015 budget for exploration at Wheeler River includes diamond drilling, ground geophysics and line cutting at a total cost of $10.0-million (Canadian) (Denison's share, $6.0-million (Canadian)).
As the primary focus of the company's summer exploration program, 36 drill holes totalling 24,000 metres are planned for the Wheeler River property. Several new high-priority targets were identified in the proximity of the Gryphon zone during the winter program, including the discovery of a new area of unconformity mineralization south of Gryphon. The company plans to aggressively follow up on these targets during the summer exploration season and evaluate other prospective target areas on the property.
The Gryphon zone is an important uranium discovery and has the potential to significantly increase the resource base at Wheeler River, which is currently highlighted by the high-grade Phoenix deposit with a total indicated mineral resource estimate of 70.2 million pounds U3O8, with an average grade of 19.1 per cent U3O8 and a total inferred mineral resource estimate of 1.1 million pounds U3O8, with an average grade of 5.8 per cent U3O8. A portion of the drilling planned at the Gryphon zone during the summer is intended to support the preparation of an updated estimate of mineral resources for Wheeler River later in the year.
Mineral sales, toll milling revenue, development and operations
The 2015 production plan calls for between six million and eight million pounds U3O8 to be packaged at the McClean Lake mill during the year. Production is expected to be primarily from Cigar Lake ore, with supplemental ore from the McClean Lake joint venture stockpiles. Denison's share of operating and capital expenditures at McClean Lake in 2015 is estimated at $500,000 (Canadian). Denison's expenditures are expected to be offset by toll milling fees and revenue from the sale of approximately 26,000 pounds U3O8, recovered from McClean Lake ores. Denison's total revenue from operations is projected to be $3.8-million (Canadian).
Given the current forecasts for the price of uranium, the Sabre program will be kept on care and maintenance, and the McClean North and Midwest projects will remain on standby in 2015. Total expenditures on Sabre are planned to be $900,000 (Canadian) (Denison's share, $203,000 (Canadian)), and total expenditures on McClean North and Midwest are planned to be $375,000 (Canadian) (Denison's share, $94,000 (Canadian)).
Reclamation expenditures at Elliot Lake are projected to be $819,000 (Canadian).
Africa
The company has budgeted spending approximately $2.3-million during 2015, to maintain its projects in good standing, while the company waits for market conditions that will permit a spin-out or disposal of its African portfolio. On its wholly owned Mutanga project in Zambia, activities will focus on generating additional exploration targets through soil and radon sampling, excavator trenching, and geological mapping. In Mali, activities will focus on an expansion of previous airborne geophysical surveying and renewing the exploration permit for the Falea project.
Asia
In Mongolia, the company continued to pursue strategic alternatives for its 85-per-cent interest in the GSJV in the quarter. On July 29, 2015, Denison entered into a definitive share purchase agreement providing for the GSJV sale. UI will be responsible for the operating expenses incurred in Mongolia starting from the closing date of the transaction (on or before Sept. 8, 2015). The current outlook for Mongolia has been increased to $1.2-million for 2015, to reflect additional spending incurred in relation to the GSJV sale.
Other activities
Management fees generated from Denison's management services agreement with UPC are budgeted to be $2.1-million (Canadian) in 2015.
At DES, revenue from operations is budgeted at $7.4-million (Canadian), and operating and capital expenses are forecasted to be $7.2-million (Canadian).
Corporate general and administration expenses are forecast to be $4.9-million (Canadian) in 2015, and include all head office wages 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 U.S. The company has not yet updated its current outlook for project costs associated with the arrangement with Fission.
Qualified person
The disclosure of scientific and technical information regarding Denison's properties in this news release was prepared by or reviewed by Steve Blower, PGeo, the company's vice-president, exploration, and Terry Wetz, PE, the executive director of the GSJV, who are qualified persons 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 5, 2015, available on SEDAR, and its Form 40-F, available on EDGAR.
Additional information
Denison's consolidated financial statements for the six-month period ended June 30, 2015, and related management's discussion and analysis, are available on Denison's website or under the company's profile on SEDAR and on EDGAR.
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