VANCOUVER — Lukas Lundin’s Denison Mines (TSX: DML; NYSE-MKT: DNN) has a singular vision at its Wheeler River joint venture in Saskatchewan’s Athabasca Basin: to become Canada’s next uranium producer. The company may not currently be authoring grassroots discovery headlines, but it is systematically advancing its Phoenix and Gryphon uranium deposits toward an unwavering 2025 production target, while simultaneously attempting to control equity dilution.
The project sits in the infrastructure-rich eastern portion of the Athabasca Basin, and is a joint venture between Denison (66% ownership and operator by 2018), Cameco (TSX: CCO; NYSE: CCJ) (30% ownership), and JCU Exploration (10% ownership).
Visitors view core samples at Denison Mines’ Wheeler River uranium project in Saskatchewan. Credit: Denison mines
Denison wasn’t always so razor focused on Wheeler River. President and CEO David Cates attributes the shifting priorities to recent doldrums in uranium markets that are taking a heavy toll across the entire industry.
“There has really been a tighter strategy in terms of exploration. We’d previously been working on ten to fifteen projects at any given time, but that was obviously a very different commodity market,” Cates elaborates during an interview at Denison’s Vancouver offices.
“We were very much looking to generate a pipeline of targets because we had a large portfolio, but now that we’re at historic lows in uranium we need to reduce capital spending. You really have to watch your equity dilution right now, so we’ve become much more focused on Wheeler River. We’re much more of a production story, and I think that strategy differentiates us from our peer group,” he continues.
Denison’s strategy is based on a supply-demand scenario that stretches over the next five to ten years. The company acknowledges that Athabasca Basin deposits tend to have longer development lead times relative to projects in Africa or the United States due to regulatory processes and logistical considerations.
Denison has a good read on uranium fundamentals because of two unique relationships it has in the market. First, the company manages Uranium Participation Corp. (TSX: U; US-OTC: URPTF), which invests roughly 85% of its equity offering proceeds directly into uranium oxide in concentrates (U3O8) and uranium hexafluoride. Second, it holds a 22.5% interest in the McClean Lake joint venture, which includes several uranium deposits and the McClean Lake uranium mill.
Areva, Denison Mines and OURD Co.’s McClean Lake uranium mill in northern Saskatchewan. Credit: Denison Mines.
“What we’ll be watching over the next few years is the utilities and uncovered demands. Today everything is covered to generate nuclear energy, but in ten years 75% of the uranium utilities will require hasn’t been purchased yet,” Cates explains.
“So we’re looking at this and thinking everyone needs to be buying for 2025. There is a risk level before that, however, where around 30% of the uranium requirements will be uncovered, and it’s not very far away. There’s an emerging need for utilities to start contracting again, and it’s going to get very interesting in our space,” he says.
In order to benefit from potential market improvements, Denison is aiming to release a pre-feasibility study (PFS) on Wheeler River by 2018 that will set the stage for project financing and permitting. The strategy underpins roughly 80,000 metres of drilling the company will complete on Phoenix and Gryphon by the end of 2017, which is heavily focused on generating indicated resources and optimizing the mine plan.
Drills in 2015 at Denison Mines’ Wheeler River uranium project in northern Saskatchewan’s Athabasca basin. Credit: Denison Mines.
Denison is building on a preliminary economic assessment (PEA) it released on the project in April 2016.
The existing model involves basement-hosted resources at Gryphon totaling 834,000 inferred tonnes at 2.3% U3O8 for 43 million contained lbs., and 166,000 indicated tonnes at Phoenix grading 19.1% U3O8 for 70.2 million contained lbs.
Gryphon would produce 40.7 million lbs. U3O8, over a seven year mine life, at a cash operating cost of US$14.28 per lb. Phoenix would then crank out 64.0 million lbs. U3O8, over a nine year mine life, at a cash operating cost of US$22.15 per lb.
The development requires $560 million in total pre-production capital and features a pre-tax net present value (NPV) of $513 million at an 8% discount rate and a 20.4% internal rate of return (IRR). Economic results are based on a long-term uranium price of US$44 per lb.
“We really want to achieve the maximum amount of indicated resources at Gryphon heading into the PFS,” Cates adds. “That can really help our economics because the material at that deposit tends to be lower cost in terms of production. In addition, the sustained capital to develop Phoenix also gets pushed out a certain number of years and discounted more. The core prize is a project we can finance and move ahead with permitting. That’s really where our exploration program is focused this year.”
Chad Sorba (left) and Denis Goulet at Denison Mines’ Wheeler River project. Credit: Denison Mines
Denison recently unveiled a $14.5-million joint-exploration budget that is largely focused on expanding mineralization around Gryphon via 46,000 metres of exploration and infill drilling.
The company sees potential resource upside at the recently-discovered D-series lenses located immediately north of Gryphon, where 2016 assay highlights include: 11 metres of 5.3% U3O8 from 718 metres depth in hole WR-641; and 6 metres averaging 2.9% U3O8 from 759 metres depth in hole WR-633D1. Denison completed around 40,000 metres of drilling on the D-series targets last year.
Furthermore, Denison recently discovered “additional high-grade mineralization” down-dip and up-dip of Gryphon’s A and B series lenses that lies outside current resource calculations. For example, drill hole WR-674 cut 4.4 metres of 2.5% eU3O8 from 744 metres depth down-dip of the A and B series; while hole WR-602D1 intersected 11.4 metres of 1.2% eU3O8 from 693 metres depth.
“We hit that new mineralization in the footwall outside the Gryphon zone, and the D series became a major focus for us as we stepped out along strike,” explains vice-president exploration Dale Verran.
“We believe it’s going to have significant impact on our resources moving forward. The key thing to note is that the D lenses are still open, and we see potential heading to northwest and southeast. Then, in the summer, we came in and tested down dip of the A and B lenses and cut some good grades at nice thickness. In fact, it was an improvement from the holes that were drilled up dip,” he continues.
Project geologist Yongxing Liu at a core-storage facility at Denison Mines’ Wheeler River uranium project in Saskatchewan. Credit: Denison Mines
Though Denison remains committed to the production story, it hasn’t completely moved away from acquisitions and greenfield exploration. In late 2016 the company moved into the western Athabasca Basin via the acquisition of an 80% interest in the Hook-Carter property, which is on strike from NexGen Energy‘s (TSX: NXE; US-OTC: NXGEF) emerging Arrow discovery and Fission Uranium‘s (TSX: FCU; US-OTC: FCUUF) Triple R deposit near Patterson Lake.
Denison acquired Hook-Carter from ALX Uranium (TSXV: AL; US-OTC: ALXEF) in exchange for 7.5 million shares and $12 million in exploration expenditures. The company subsequently consolidated the project through the purchase of the Coppin Lake property, which lies between the Carter East and Carter West blocks.
“We will be continuing to look at projects outside of Wheeler, but it will be focused on potential high-impact discovery targets,” Cates concludes. “Hook-Carter is one opportunity we’re excited about along the Patterson Lake corridor. We have unconformity and basement potential to test, and there’s only been five holes drilled to date along our trend. The real strategy for us is becoming the next uranium producer, and a core part of that is adding long-term discovery assets to the portfolio.”
Denison has traded within a 52-week window of 49¢ and $1.08, and gained 34% over the first four weeks of 2017 en route to a 98¢ per share close at press time. The company maintains 533.4 million shares outstanding for a $518.3-million market capitalization at the time of writing, and reported US$11.8 million in cash and equivalents at the end of September 2016.