Denison Mines (TSX: DML) – A Smartly Positioned Uranium Junior?

Denison Mines Corp.
  • TSX: EQX
  • Shares Outstanding: 597M
  • Share price C$0.44 (27.02.2020)
  • Market Cap: C$278M

Uranium has been a stagnant investment for some time. However, in the last few weeks, particularly after the US Department of Energy (DoE)announcement of a US$150M uranium reserve budget, uranium equities were starting to show signs of life, only to see their legs kicked from under them this week. The DoE announcement, whist welcome and moderately positive, did nothing to clear up the continued uncertainty as to the US government’s stance on the nuclear energy market in the US. It has been perceived by some as pre-election posturing.

The selling has possibly been triggered by broader market conditions and alarmist news surrounding the Coronavirus impacts in Asia, but right now, it feels like guesswork to understand the uranium investment space. Even the brightest admit to being baffled and operating in a void, so they wait. Uranium equities holders though seem to have lost the FOMO element. They know they can come back in cheaply and have been missing out on other opportunities; even the gold guys have been making money…

Regardless of what the uranium price is doing right now, prospective and existing uranium investors share an unmoving philosophy: this is a sector with big unfulfilled potential. So, if you have settled on the thesis, aren’t jaded by the whole experience and haven’t had to average down for the last several months, it might be the perfect time to start picking winners as these market conditions could create some real buying opportunities for new entrants.

A uranium photo with uranium text and a nuclear logo

Denison Mines

CRUXinvestor interviewed David Cates, President and CEO of Uranium developer, Denison Mines (TSX: DML). It was an intriguing interview that you can watch by clicking HERE. There are numerous useful articles on our platform regarding picking uranium space winners and detailing potential red flags. Click HERE or HERE to read one.

Cates says Denison Mines has some unique qualities that could set it apart from the pack. It is a question of whether the market believes in the company’s business model and its ability to deliver it. However, as with all things mining, there are a few red flags, such as permitting, but Cates feels that they will be able to resolve this particular issue. Then it’s just a question of funding the CapEx in a difficult market, but Cates tells us they are clear on how they can do this too.

Denison Mines is a uranium exploration/development company with 90% ownership interest in the Wheeler River project, the ‘largest undeveloped high-grade uranium project in the eastern portion of the Athabasca Basin.’

Denison Mines’ c. 310,000ha Athabasca exploration portfolio also includes:

  1. A 22.5% ownership interest in the McClean Lake joint venture (which is currently processing ore from the Cigar Lake mine under a toll milling agreement)
  2. A 25.17% interest in the Midwest & Midwest A deposits
  3. A 65.92% interest in the J Zone & Huskie deposits and Huskie discovery on the Waterbury Lake property. Each project is located within 20km of the McClean Lake mill.

A High-Grade Flagship?

The Wheeler River project features two high-grade uranium deposits: Phoenix and Gryphon.

Phoenix’s high-grade core is estimated to contain 62,900t at 43.2% U3O8 for 59.9Mlbs U3O8. Denison Mines states probable mineral reserves of 109.4Mlbs U3O8 (Phoenix 59.7Mlbs U3O8 from 141,000t at 19.1% U3O8; Gryphon 49.7Mlbs U3O8 from 1,257,000t at 1.8% U3O8). A PFS conducted in 2018 puts the operating cost of Phoenix at US$3.33/lb U3O8.

While the resources at the Wheeler River Project aren’t enormous, they are high-grade, low-cost, and have a significant amount of explorational upside potential to “squeeze out.” Scale is one thing; a technically proficient management team, affordable mining costs, exploration upside, effective storytelling to the market and coherent business strategies are quite another. Our interview with Cates gets in to the detail of how he plans to deliver on all of those variables.

A nuclear reactor

Denison originally optioned the Wheeler River Project from Cameco. The team has delineated the uranium resources and expanded it. The story has been, to this stage, fairly conventional. Cates was able to explain ISR vs conventional mining debate.

Denison Mines has spent C$100M on exploration at Wheeler. It has repeatedly raised capital. Investors will need to decide if this has been spent astutely. Denison Mines is now prioritising its capital to further develop existing projects and delineate additional ISR-amenable resources. As of Q3/19 Denison Mines had C$10M cash on the books, and the company raised an additional C$4.7M in December 2019 and had a burn rate of around C$1M per month in 2019. We wouldn’t be surprised to see Denison Mines going back to the market soon. Investors clearly have interest in this story, and Cates is a straight -talker, but all uranium players are treading water right now. This week’s hit to their share price won’t help the mood of investors, nor Denison’s ability to raise capital. Cates is talking about structured finance as a possibility, but again the permits are the long-pole in the tent.

A nuclear power plant

Cates expanded on the Canadian permitting situation: in our opinion, an important and potentially disruptive stumbling block for Denison Mines. He admits it can be more difficult to obtain permits when utilising technology that individuals are unfamiliar with, but he maintains the lack of waste (no long-term tailings dump and minimal surface impact) generated by ISR is an advantage they will not be able to ignore. After all, Cates states that permitting is largely an environmental impact story. This is currently the main concern of this otherwise encouraging uranium story. Even the most bullish uranium investor will likely feel nervous because, despite Cates’ claims, the permitting process it entirely at the discretion of the Canadian government, and we don’t know what sort of timescale we’re truly looking at. Is this a red flag for investors? Can investors accept the risk that comes with operational choice being taken out of a company’s hands?

Denison Mines appears concerned in positioning itself to be able to get in to production sooner than its peers, rather than building a large resource:

  1. It will look to get into production before both NexGen and Fission.
  2. The project development CAPEX will also be around C$350M, rather than some of the numbers that we have seen in excess of C$1Bn.
  3. Once in production, Denison Mines can have contract conversations with utility companies which should provide long-term financial certainty to the market, or so Cates hopes.

Utility companies are unlikely to sign contracts with uranium companies not in production, so Denison Mines is positioning itself smartly. This is definitely a story to keep an eye on. If the team can time this right, they could well be on to a winner; that is if the province and state plays ball.

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If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Denison Mines Logo.

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