Mr. Ron Hochstein reports
DENISON MINES CORP. REPORTS 2012 RESULTS
Denison Mines Corp. has released its results for the three months and year ended Dec. 31, 2012. All amounts in this release are in U.S. dollars unless otherwise stated.
Completed the sale of the company's subsidiaries holding all of its
mining assets and operations located in the United States to Energy Fuels Inc. (EFR); in exchange,
consideration equal to 425.4 million common shares of EFR was received
and distributed to Denison shareholders;
Completed a new mineral resource estimate, in accordance with National
Instrument 43-101, for the company's Phoenix A and B
deposits; the result is a 47-per-cent increase in indicated pounds of triuranium octoxide (U3O8) and a
100-per-cent increase in inferred pounds of U3O8 over the previous mineral
resource estimate from 2010;
Obtained approval for amendments to the operating licence for the
McClean Lake mill, permitting an increase in the annual production from
eight million pounds U3O8 to 13 million pounds U3O8; approval was also
obtained for the environmental assessment prepared by the Midwest joint
Completed a new mineral resource estimate, in accordance with NI 43-101,
for the company's Mutanga project in Zambia; the result is the addition
of inferred resources, from the Dibwe East deposit, estimated to be 28.2
million pounds U3O8, from 39.8 million tonnes grading 322 parts per
million (ppm) U3O8 equivalent (eU3O8), at a cut-off grade of 100 ppm eU3O8;
Entered into an agreement to acquire all the outstanding common shares
of JNR Resources Inc. in exchange for common shares of the
company at an exchange ratio of 0.073; this transaction was completed on
Jan. 31, 2013;
Acquired 3.6 million common shares and 1.8 million common share purchase
warrants of International Enexco Ltd., in support of Enexco's
exploration activities on the Mann Lake project in Saskatchewan;
Completed a $7-million (Canadian) offering of flow-through common shares at a
price of $1.69 (Canadian) per share.
The company recorded a net loss from continuing operations of $4,601,000 (one cent per share) and $25,455,000 (seven cents per share) for the three months and year ended Dec. 31, 2012, compared with a net loss of $16,039,000 (four cents per share) and $24,552,000 (seven cents per share) for the three months and year ended Dec. 31, 2011. The net loss from discontinued operations was $92,493,000 (24 cents per share) for the year ended Dec. 31, 2012, compared with a net loss of $46,317,000 (12 cents per share) for the year ended Dec. 31, 2011.
The results of the discontinued operations include a charge of $97,944,000 for the year ended Dec. 31, 2012, related to an impairment of the U.S. mining division. The impairment was recorded as a result of the transaction with EFR, which closed on June 29, 2012.
Three months Three months
(in thousands, ended ended Year ended Year ended
except per-share Dec. 31, Dec. 31, Dec. 31, Dec. 31,
amounts) 2012 2011 2012 2011
Total revenues $ 2,596 $ 4,432 $ 11,127 $ 25,796
Net income (loss)
operations (4,601) (16,039) (25,455) (24,552)
Net income (loss)
operations 155 (49,498) (92,493) (46,317)
Basic and diluted
per share from
operations (0.01) (0.04) (0.07) (0.07)
Basic and diluted
per share from
operations - (0.13) (0.24) (0.12)
There were no uranium sales in 2012 from the company's continuing operations. In 2011, the company sold 117,000 pounds U3O8 for total sales revenue of $7,693,000 in the Canadian mining segment. There were no uranium sales in the fourth quarter of 2012 or 2011.
Revenue from the environmental services division (DES) for the three months and year ended Dec. 31, 2012, was $2,211,000 and $9,456,000, compared with $3,995,000 and $16.19-million in the same periods in 2011. Revenue decreased in 2012 due to the expiry of the care and maintenance agreement for the Faro mine complex in March, 2012.
Revenue from the management contract with Uranium Participation Corp. (UPC) for the three months and year ended Dec. 31, 2012, was $385,000 and $1,671,000, compared with $437,000 and $1,913,000 in the same periods in 2011.
Since there were no uranium sales in 2012, the mineral concentrates cost of goods sold was nil for 2012, compared with $6,659,000 for 2011. The McClean Lake mill remained on standby for the entire year in 2012. The Cigar Lake joint venture continues to pay nearly all of the standby expenses under the terms of the toll milling agreement. Operating costs for the three months and year ended Dec. 31, 2012, totalled $1,194,000 and $3,359,000, compared with $290,000 and $804,000 for the three months and year ended Dec. 31, 2011. Operating costs increased in 2012 due to increased financing of the SABRE (surface-access borehole resource extraction) program, which is not part of standby costs.
Operating expenses also include costs relating to DES amounting to $2,165,000 for the three months and $9,243,000 for the year ended Dec. 31, 2012, compared with $3,682,000 and $15,342,000, respectively, for the same periods in 2011. DES costs decreased in 2012 due to the expiry of the Faro contract in March, 2012.
Mineral property exploration
Denison is engaged in uranium exploration, as both operator and non-operator of joint ventures and as operator of its own properties in Canada, Mongolia and Zambia. Exploration expenditures for the three months ended and year ended Dec. 31, 2012, were $1,823,000 and $12,508,000, compared with $1,164,000 and $13.15-million for the three months and year ended Dec. 31, 2011.
In the Athabasca basin region of Northern Saskatchewan, Denison is engaged in uranium exploration as part of the AREVA Resources Canada Inc. (ARC)-operated McClean and Midwest joint ventures, as well as on 24 other exploration projects, including the company's 60-per-cent-owned Wheeler River project, for the year ended Dec. 31, 2012. Denison's share of exploration spending on its Canadian properties totalled $701,000 and $5,725,000 for the three months and year ended Dec. 31, 2012. A total of 34,900 metres of diamond drilling was completed on four properties in 2012. By comparison, Canadian exploration spending totalled $519,000 and $6,783,000 for the three months and year ended Dec. 31, 2011.
The 2012 drill program on the Wheeler River project involved mainly definition drilling at the Phoenix A and B deposits. A total of 27,263 metres was drilled in 58 holes, which expanded the Phoenix deposits and resulted in the a mineral resource estimate.
Drilling continues on the Wheeler River project in 2013, with a 25,000-metre winter and summer drill program planned along with geophysical surveys at a total cost of $6.8-million (Canadian) (Denison's share $4.1-million (Canadian)). The 2013 programs will have a greater emphasis on exploration compared with the past several years, both proximal to Phoenix and at other target areas. A small component of infill drilling is also planned to further expand and upgrade the Phoenix mineral resource estimates.
For the entire Athabasca property portfolio, a total of 44,100 metres of diamond drilling is planned on eight different properties in 2013. This work will be complemented by numerous ground and airborne geophysical programs, resulting in exploration activity on a total of 11 different properties during the year.
In Zambia, exploration expenditures of $1,097,000 and $3,627,000 for the three months and year ended Dec. 31, 2012, were incurred on the company's Mutanga project compared with $445,000 and $2,396,000 for the three months and year ended Dec. 31, 2011. In early 2012, the company estimated an inferred mineral resource for the newly discovered Dibwe East deposit, in accordance with NI 43-101, consisting of 28,246,000 pounds U3O8 contained in 39.8 million tonnes grading 322 ppm U3O8 (above a cut-off grade of 100 ppm U3O8). A total of 18,160 metres of exploration drilling was completed in 137 drill holes in 2012. Drilling in 2012 targeted several areas, including Mutanga East, Dibwe North and the Dibwe-Mutanga corridor, plus deeper targets beneath known mineralization at the Dibwe and Mutanga deposits. Promising intersections were obtained at Mutanga East and along the Dibwe-Mutanga corridor, demonstrating the potential of these areas.
In Mongolia, exploration expenditures on the company's Gurvan Saihan joint venture (GSJV) properties totalled $25,000 and $3,156,000 for the three months and year ended Dec. 31, 2012, compared with $200,000 and $3,971,000 for the three months and year ended Dec. 31, 2011. A 29,700-metre drill program was completed on the Urt Tsav and Ulziit properties in 2012, with the drilling on Ulziit approximately doubling the defined extent of the mineralized system.
The company currently has an 85-per-cent interest in the GSJV in Mongolia. The other party to the joint venture is the Mongolian government, with a 15-per-cent interest. In March, 2012, the company acquired the 15-per-cent interest in the GSJV held by Geologorazvedka, a Russian entity, in exchange for cash consideration of $742,000 and the release of Geologorazvedka's share of unfinanced joint venture obligations. Under the Nuclear Energy Law of Mongolia, the Mongolian participant in the GSJV is entitled to hold a 34-per-cent to 51-per-cent interest in the GSJV, depending on the amount of historical exploration that was funded by the government of Mongolia, to be acquired at no cost to the Mongolian participant. This interest would be held by Mon-Atom LLC, the Mongolian state-owned uranium company. The company and Mon-Atom are proceeding with restructuring the GSJV to meet the requirements of the Nuclear Energy Law, pending receipt of mining licences and government reviews and authorizations. The final restructuring of the GSJV is expected to result in the company having its interest reduced to 66 per cent. Discussions are continuing and the timing for completion of the restructuring is uncertain at this time.
On June 29, 2012, the company and EFR completed a transaction whereby EFR acquired the U.S. mining division from Denison in exchange for consideration equal to 425,440,872 common shares of EFR. Immediately following the closing of the sale transaction, Denison completed the remaining steps in the plan of arrangement to reorganize its capital and distribute the EFR share consideration to Denison shareholders on a pro rata basis as a return of capital. Upon completion of the Denison arrangement, Denison shareholders of record on June 29, 2012, received approximately 1.106 common shares of EFR for each common share of the company they owned, while retaining their Denison shares.
Immediately prior to the sale, the company tested the U.S. mining division for impairment using the fair value of the EFR share consideration as the recoverable amount. The company determined that the recoverable amount of the U.S. mining division was lower than its carrying value. As a result, the company recognized an impairment charge of $97,944,000 in the year ended Dec. 31, 2012.
As a result of the EFR transaction, Denison has accounted for its U.S. mining division as a discontinued operation.
Liquidity and capital resources
Cash and cash equivalents were $38,188,000 at Dec. 31, 2012, compared with $53,515,000 at Dec. 31, 2011. The decrease of $15,327,000 was due primarily to cash used in operations of $6,769,000, and expenditures on property, plant and equipment totalling $13,122,000, offset by cash generated from financing activities totalling $6.56-million.
Net cash used in operating activities of $6,769,000 during the year ended Dec. 31, 2012, comprises net loss for the period adjusted for non-cash items and for changes in working capital items. Significant changes in working capital items during the period include an increase of $14,025,000 in inventories, prior to the disposal of the U.S. mining division, and a decrease of $9,449,000 in trade and other receivables.
Net cash used in investing activities was $16,043,000, consisting primarily of expenditures on property, plant and equipment of $13,122,000 and investment purchases of $1,816,000.
Net cash provided by financing activities of $6.56-million relates primarily to the issuance of flow-through common shares for proceeds, net of issuance costs, of $6,556,000.
In total, these sources and uses of cash resulted in a net cash outflow after the effect of foreign exchange of $15,327,000 in the year.
The company has in place a revolving credit facility for up to $15-million. The facility expires on June 28, 2013. Bank indebtedness under the facility at Dec. 31, 2012, was nil; however, $9,748,000 of the line is used as collateral for certain letters of credit. As part of the credit facility, the company has provided an unlimited full recourse guarantee and a pledge of all of the shares of Denison Mines Inc.
On Jan. 16, 2013, Denison announced the signing of a binding letter of intent to acquire a portfolio of assets from Fission Energy Corp., including its 60-per-cent interest in the Waterbury Lake uranium project, its interests in all other properties in the eastern part of the Athabasca basin, Quebec and Nunavut, and its interests in two joint ventures in Namibia. Denison entered into an arrangement agreement with Fission on March 7, 2013. Under the terms of the Fission arrangement, Denison will offer shareholders of Fission 0.355 of a share of Denison for each Fission share held. The completion of the transaction is conditional upon, among other things, certain assets of Fission being spun out to a new company. Denison expects to issue approximately 49.2 million common shares to complete the acquisition, which values the assets at approximately $62.5-million (Canadian) based on Denison's closing share price of $1.27 (Canadian) per share on March 6, 2013.
On Jan. 31, 2013, Denison closed its previously announced plan of arrangement to acquire all of the outstanding common shares of JNR. Pursuant to the JNR arrangement, the former shareholders of JNR received, for each JNR common share held, 0.073 of a Denison common share. All of the outstanding options and common share purchase warrants of JNR were exchanged for options and warrants to purchase common shares of Denison with a number and exercise price determined by reference to the exchange ratio. On closing, Denison issued 7,975,479 common shares with a value of approximately $10.9-million (Canadian).
On March 7, 2013, Denison's board of directors approved an amendment to the company's bylaws, subject to shareholder confirmation at the company's annual and special meeting of shareholders on May 9, 2013. The amendment sets a deadline by which shareholders must submit a notice of director nominations to the company prior to any annual or special meeting of shareholders where directors are to be elected, and also sets out information which a shareholder must include in that notice. In the case of an annual meeting of shareholders, notice to the company must be provided not less than 30 days prior to the date of the meeting. For this year's meeting, any notice of director nominations must be delivered to the company prior to the close of business on Tuesday, April 9, 2013. The amended bylaws are available on the company's profile on SEDAR and will be described in detail in the company's management information circular to be mailed to shareholders in early April.
Outlook for 2013
Denison will manage or participate in 11 exploration programs. Wheeler River will continue to be the primary focus. In addition to the Wheeler River project (25,000 metres), winter drill programs are also planned for Moore Lake (6,400 metres), Hatchet Lake (1,940 metres), Wolly (2,500 metres) and McClean Lake (4,000 metres). Wolly and McClean Lake are operated by ARC and Denison's interest is 22.5 per cent in each of those projects. Exploration work, including drilling or geophysical programs, will also be carried out on the Crawford, Bachman, Russell Lake, Stevenson River, Perpete Lake and Bell Lake properties. The total budget for these programs is $14.6-million (Canadian), of which Denison's share is $9.9-million (Canadian).
Denison and its partners have budgeted $3.5-million (Canadian) (Denison's share $814,000 (Canadian)) to be spent on the SABRE program as well as the Midwest and McClean Underground development-stage projects in 2013. The majority of the expenditures are planned for the evaluation of the results of the SABRE two-hole test program, completed in 2012, and the preliminary evaluation of the SABRE mining method for the Caribou and Midwest deposits. The McClean Underground project feasibility study was completed in the fourth quarter of 2012, and it was agreed to postpone a production decision due to the poor condition of the uranium market. A production decision will be revisited in 2013. Very little work is currently planned on the Midwest project.
The McClean Lake mill continues to be on standby, but activity at the mill has begun to ramp up in preparation for processing of Cigar Lake ore anticipated to begin later in 2013. Construction on the McClean Lake mill expansion, which is 100 per cent financed by the Cigar Lake joint venture, began last summer and will increase annual production capacity to 24 million pounds U3O8. Denison's share of operating and capital expenditures in 2013 is estimated at $1.8-million (Canadian). Denison expenditures are expected to be offset by revenue projected at $1.5-million (Canadian) from toll milling revenues and the proceeds from the sale of approximately 25,000 pounds U3O8 recovered from McClean Lake ores processed as part of the Cigar Lake commissioning efforts.
On its wholly owned Mutanga project in Zambia, the company plans to carry out extensive programs of geological mapping and geochemical and geophysical surveying to increase the confidence in existing drill targets and identify new targets. At this point no exploration drilling is planned for 2013. The Zambian program will total an estimated $3.5-million.
In Mongolia, mining licence applications for its four licence areas were submitted in 2011 and the company is continuing to work to restructure the GSJV to meet the requirements of the Mongolian Nuclear Energy Law. In 2013, the Mongolian program is estimated at $1.7-million. The focus in 2013 will be on the continuing restructuring efforts and the work necessary to obtain the mining licences.
The disclosure of scientific and technical information regarding Denison's properties in this press release was prepared by or reviewed by Steve Blower, PGeo, the company's vice-president, exploration, and Terry Wetz, PE, the company's vice-president, project development, who are qualified persons in accordance with the requirements of NI 43-101.
Denison's consolidated financial statements for the year ended Dec. 31, 2012, and related management's discussion and analysis are available on Denison's website and under its profile on SEDAR and on EDGAR.
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