exv99w6
Ron F. Hochstein
President and Chief Executive Officer
For Denison, 2010 marked a turning point. Until late last year management’s time and energy was
committed to making difficult choices in the face of soft uranium and financial markets. However,
the new decade has ushered in the beginning of a recovery in the uranium market and enabled
management to concentrate on Denison’s potential again.
As the 2010 Annual Report was going to press, the tragic events in Japan began to unfold. We at
Denison wish to express our deepest sympathy for the people of Japan and in particular our Japanese
partners and customers and their families impacted by the tragic loss of life and the extensive
devastation. Although the outcome of the nuclear incident in Japan is still uncertain, there will
certainly be impacts on the nuclear industry and uranium production. There may be some immediate
impacts as the uranium market reacts to the news. However, nuclear power is too important a part of
the world’s energy portfolio to be abandoned to any appreciable degree. The construction of new
reactors in countries such as China, Russia, India and Korea will continue. Even with the reactors
operating today, we consume annually more uranium than we produce. The market may face an immediate
shock; but, the uranium market fundamentals remain strong.
To grow and realize Denison’s potential, management has focussed and will continue to focus in 2011
on four strategic elements of the Company: the growth of the Wheeler River project, the advancement
of our near term project development portfolio, the optimization and expansion of our production
base, and the maintenance of a strong balance sheet to finance these activities.
Since mid-2009, the uranium market has been depressed with prices trading in the low $40’s per
pound U3O8 for most of that time, with short-lived excursions into the low $50’s. In our view, this
sustained low price environment was primarily attributable to an exaggerated and rapid price
increase in the uranium spot price in 2004 to 2007 when it rose over 580%, from $20.00 to $136.00
per pound U3O8. During this period of lower uranium prices, Denison faced mill and mine closures,
reduced sales and stalled exploration and development projects. Fortunately for Denison, the
uranium price showed signs of recovering from its depression in mid-2010, and prices steadily
climbed to end the year at $62.50 per pound. Rising uranium prices are due to a number of factors,
but can be attributed primarily to strong market fundamentals as China, Russia, India and Korea
bring on-stream new reactors. This trend is forecast to continue.
Denison is also a producer of vanadium from our U.S. operations; in fact, Denison is the only
primary supplier of vanadium in North America at the present time. Vanadium demand is dominated by
the steel industry, with over 92% of demand coming from steel production. With the resurgence of
the world economy, including the continued growth of the Chinese economy, the vanadium market also
rebounded in 2010. Vanadium prices for most of the year were between $5.50 and $7.00 per pound
V2O5. Vanadium revenue in 2010 represented approximately 13% of Denison’s total revenue. For 2011,
we are anticipating more of the same, both in terms of our production and the vanadium price.
2 Denison Mines Corp. Annual Report 2010
Last year was an important year for the development of the Phoenix deposit at Wheeler River,
Saskatchewan. After more than 30 years of exploration by various companies, Denison as operator of
its 60% owned Wheeler River project, drilled the Phoenix discovery hole in 2008. Two years later,
Denison received the first independent mineral resource estimates for the Phoenix deposit. This
mineral resource estimate puts the Phoenix deposit into a world-class group, given its high grade
and size potential. To expand the initial mineral resource estimates at Phoenix, Denison and its
joint venture partners, Cameco Corporation and JCU (Canada) Exploration Company Limited (a Japanese
consortium), are embarking on the largest exploration program ever undertaken on this project. In
addition to a 35,000 metre drilling program for 2011, Denison will begin environmental baseline
programs and preliminary engineering, all aimed at our goal of realizing first production at
Wheeler River in 2019. To stay on track, the Wheeler River Joint Venture must make a positive
production decision by the end of 2012. This will require commitment from all of the partners, a
lot of hard work and to some degree a little bit of good luck. With exploration, some serendipity
always factors into the discovery of a new mine.
In addition to its promising work at Wheeler River, Denison carried out exploration programs on
other properties in Canada, the United States and Mongolia in 2010. All of these programs, although
not as successful as Wheeler River, advanced those projects. In 2011, we will be carrying out
exploration programs on eight properties in the Athabasca Basin, other than Wheeler River, and
programs in the United States, Mongolia and Zambia. Through exploration, we are developing both the
near term and longer term potential of our diverse exploration projects.
Our second key element in achieving Denison’s potential is to advance our near term project
portfolio. In 2010, most of our development activities were put on hold due to the low uranium
price and the need to strengthen the balance sheet. However, with the rise in uranium prices and
the renewed strength of our balance sheet in 2011, we plan to increase our development activities.
In Canada, our joint venture partner AREVA Resources Canada Inc. is moving the McClean Underground
project through its evaluation process with the objective of making a project decision in 2012.
Permitting is also moving forward on Midwest, albeit slower than anticipated due to regulatory
requirements at both the federal and provincial levels. In the United States, we began development
of our second mine on the Arizona Strip, the Pinenut mine, late in 2010 and anticipate first ore
production in mid-2012. In Mongolia, we have an aggressive drilling and engineering program planned
provided we resolve the ownership structure of our joint venture with the Mongolian Government. Our
target is to have this resolved by mid 2011, so that we can complete the program later in the year
and potentially see initial pilot plant production in early 2013. In Zambia, we are carrying out
large scale column heap leach test work and a 17,000 metre drilling program with the objective of
confirming the feasibility study assumptions and building the resource base. If successful, Denison
could make a project decision on our Mutanga project by year end.
Management remains focussed on expanding the Company’s production, the third key element in Denison
realizing its potential. In 2010, Denison produced approximately 1.4 million pounds U3O8, with the
White Mesa mill producing approximately 1.0 million pounds U3O8 and 2.3 million pounds of vanadium
as V2O5. In Canada, the McClean Lake mill was shut down in June due to a lack of ore feed, but not
until it produced approximately 1.7 million pounds in 2010, of which Denison’s share was 389,000
pounds. In 2011, our production potential lies in our U.S. operations and our three currently
operating mines, Beaver, Pandora and Arizona 1. Early in 2011, we announced a bid to acquire White
Canyon Uranium Limited. If the bid is successful, this will add a fourth operating mine to our U.S.
portfolio. In addition, we are evaluating the potential re-start of the Tony M mine, which last
operated in 2008. If economic, the restart of this mine would begin to contribute to production in
2011 and contribute more significantly in 2012. Operating cost reduction is always our objective;
however, it is becoming more challenging due to rising fuel, sulphuric acid and other reagent
prices.
The final strategic element in expanding Denison’s potential is the maintenance of a strong balance
sheet, and we made good progress on this front. Denison has entered 2011 with a strong cash balance
as a result of two equity financings, one late in 2010 and the other in the first quarter of 2011,
and with prudent operations which generated operating cash flow. Financial strength gives Denison
the opportunity to pursue its growth objectives and the ability to invest in continuous improvement
and to meet the Company’s obligations in human resource development, health and safety of our
employees and our stakeholders, environmental stewardship, and community investment. Regrettably,
our health and safety performance was marred in 2010 with the death of one of our contractor’s
employees at our Pandora mine. Our sympathies go out to the family of Hunter Diehl.
In 2010, we welcomed a second representative from Korea Electric Power Corporation, Mr. Tae-Wan
Kim, on the Board of Directors. KEPCO continues to be a valuable ally, providing Denison with
global exposure and a strong strategic business relationship.
On behalf of the directors, management and employees of Denison, I would like to thank you our
shareholders for your unwavering support. We have just begun to realize and expand our potential,
and we look forward to your continued support.
Yours truly,
Ron F. Hochstein
President and Chief Executive Officer
Denison Mines Corp. Annual Report 2010 3
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
(Expressed in U.S. dollars, unless otherwise noted)
INTRODUCTION
This Management’s Discussion and Analysis (“MD&A”) of Denison Mines Corp. and its subsidiary
companies and joint ventures (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 10, 2011 and should be read in conjunction with,
and is qualified by, the Company’s audited consolidated financial statements and related notes
for the year ended December 31, 2010. The financial statements are prepared in accordance with
generally accepted accounting principles in Canada with a discussion in Note 27 of the material
differences between Canadian and United States generally accepted accounting principles and
practices affecting the Company. All dollar amounts are expressed in U.S. dollars, unless
otherwise noted.
Other continuous disclosure documents, including the Company’s press releases, quarterly and
annual reports, Annual Information Form and Form 40-F are available through its filings with
the securities regulatory authorities in Canada at www.sedar.com and the United States at
www.sec.gov/edgar.shtml.
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” or “does not expect”, “is expected”, “budget”,
“scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or
“believes”, 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”.
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 correct and such forward-looking information included in this MD&A should not be unduly
relied upon. This information speaks only as of the date of this MD&A. In particular, this MD&A
may contain forward-looking information pertaining to the following: the estimates of Denison’s
mineral reserves and mineral resources; estimates regarding Denison’s uranium and vanadium
production levels and sales volumes; capital expenditure programs, estimated production costs,
exploration and development expenditures and reclamation costs; expectations of market prices
and costs; supply and demand for uranium and vanadium; possible impacts of litigation and
regulatory actions on Denison; exploration, development and expansion plans and objectives;
Denison’s expectations regarding raising capital and adding to its mineral reserves and
resources through acquisitions and development; and receipt of regulatory approvals, permits
and licences and treatment under governmental regulatory regimes.
There can be no assurance that such statements will prove to be accurate, as Denison’s actual
results and future events could differ materially from those anticipated in this
forward-looking information as a result of those factors discussed in or referred to under the
heading “Risk Factors” in Denison’s Annual Information Form dated March 19, 2010 and the Short
Form Prospectus dated March 8, 2011, available at http://www.sedar.com, and in its Form 40-F
available at http://www.sec.gov, as well as the following: global financial conditions, the
market price of Denison’s securities, volatility in market prices for uranium and vanadium;
ability to access capital, changes in foreign currency exchange rates and interest rates;
liabilities inherent in mining operations; uncertainties associated with estimating mineral
reserves and resources and production; uncertainty as to reclamation and decommissioning
liabilities; failure to obtain industry partner and other third party consents and approvals,
when required; delays in obtaining permits and licenses for development properties; competition
for, among other things, capital, acquisitions of mineral reserves, undeveloped lands and
skilled personnel; public resistance to the expansion of nuclear energy and uranium mining;
uranium industry competition and international trade restrictions; incorrect assessments of the
value of acquisitions; geological, technical and processing problems; the ability of Denison to
meet its obligations to its creditors; actions taken by regulatory authorities with respect to
mining activities; the potential influence of or reliance upon its business partners, and the
adequacy of insurance coverage.
Accordingly, readers should not place undue reliance on forward-looking statements. These
factors are not, and should not be construed as being, exhaustive. 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. The
forward-looking information contained in this MD&A is expressly qualified by this cautionary
statement. 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.
4 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and
Inferred Resources: “This MD&A” may use the terms “Measured”, “Indicated” and “Inferred”
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.
2010 HIGHLIGHTS
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• |
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Denison’s 2010 production totalled 1,442,000 pounds uranium oxide (“U3O8”) and
2,347,000 pounds of vanadium blackflake
(“V2O5”). |
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• |
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Uranium sales were 1,839,000 pounds U3O8 at an average price of $47.67 per pound. |
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• |
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Vanadium sales totalled 541,000 pounds
V2O5 at an average price of $6.44 per pound
and 1,003,000 pounds of ferrovanadium (“FeV”) at an average price of $13.40 per pound. |
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• |
|
At the end of 2010 the Company had 87,000 pounds
U3O8
and 679,000 pounds
V2O5 and
11,000 pounds FeV in inventory available for sale. Based on spot market prices at December
31, 2010, this inventory has a value of $9,800,000. |
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• |
|
Denison is essentially debt-free and has a cash balance of $97.6 million. |
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• |
|
The Company received initial estimates of mineral resources at Zones A and B at the
Phoenix deposit at the Wheeler River project in the Athabasca Basin in northern
Saskatchewan by SRK Consulting (Canada) Inc., which was retained to independently review
and audit the resources in accordance with the requirements of National Instrument 43-101.
The report estimated indicated mineral resources at Zone A containing 35,640,000 pounds
(the Company’s share 21,380,000 pounds) at an average grade of 18.0% U3O8 and inferred
mineral resources at Zone B containing 3,810,000 pounds (the Company’s share, 2,290,000
pounds) at an average grade of 7.3% U3O8 based on a cut-off grade of 0.8% U3O8. Denison is
encouraged by these estimates for the potential of Wheeler River in terms of its high
grade and size. |
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• |
|
The Company began development of its Pinenut mine in Arizona in the fourth quarter.
Production is expected to commence in 2012. |
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• |
|
The Company completed equity issues in December raising aggregate gross proceeds of
$64,769,000. |
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• |
|
In Zambia, the Company was granted mining licences for its Mutanga and Dibwe
properties. These licences are for a period of 25 years. |
ABOUT DENISON
Denison was formed by articles of amalgamation effective May 9, 1997 pursuant to the Business
Corporations Act (Ontario) (the “OBCA”) and by articles of arrangement effective December 1,
2006. Denison is a reporting issuer in all of the Canadian provinces. Denison’s common shares
are listed on the Toronto Stock Exchange (the “TSX”) under the symbol “DML” and on the NYSE
Amex LLC (“Amex”) under the symbol “DNN”.
Denison is an intermediate uranium producer with production in the U.S. combined with a
diversified development portfolio with projects in the U.S., Canada, Zambia and Mongolia.
Denison’s assets include its 100% ownership of the White Mesa mill in Utah and its 22.5%
ownership of the McClean Lake mill in Saskatchewan. The Company also produces vanadium as a
co-product from some of its mines in Colorado and Utah. The Company is also in the business of
processing uranium-bearing waste materials, referred to as “alternate feed materials”, for the
recovery of uranium, alone or in combination with other metals, at the Company’s White Mesa
mill.
Denison owns interests in a portfolio of exploration projects, including the Wheeler River
property, along with other properties in close proximity to the Company’s mills in the
Athabasca Basin in Saskatchewan and in the Colorado Plateau, Henry Mountains and Arizona Strip
regions of the southwestern United States.
Denison is the manager of Uranium Participation Corporation (“UPC”), a publicly traded company
which invests in uranium oxide in concentrates and uranium hexafluoride. Denison is also
engaged in mine decommissioning and environmental services through its Denison Environmental
Services (“DES”) division.
Strategy
Denison intends to position itself as an important global uranium producer with annual uranium
production of not less than 10 million pounds by 2020. This will take place through production
from Denison’s currently operating mines and through its ongoing business development
activities, including exploration and development of existing projects. Denison will also look
to diversify its production geographically and evaluate opportunities to make in-situ uranium
recovery a larger component of its production.
Denison Mines Corp. Annual Report 2010 5
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
The Uranium Industry
Nuclear power capacity and power generation is growing significantly, while uranium production
is struggling to catch up after many years of low prices and limited exploration for new
deposits required to support the growth of nuclear power and to replace depleting ore bodies.
As a result, there is a tight long-term supply-demand balance which can be expected to continue
for the foreseeable future. Prices must rise to higher, sustained levels to support the new
mines required to meet the increasing demand.
Uranium Demand
As reported by The World Nuclear Association, there are currently 443 nuclear reactors
operating worldwide in 29 countries, generating 377.8 gigawatts of electricity and supplying
14% of the world’s electrical requirements. Of greater significance, 62 nuclear reactors are
under construction in 14 countries with the principal drivers of this expansion being China,
India, South Korea and Russia which have a total of 47 reactors under construction. China, in
particular, has a very aggressive new build program underway. By 2020, it is estimated that
there will be 585 nuclear reactors in operation worldwide, supplying 535 gigawatts. This would
represent an increase in the number of reactors of over 32% in only 10 years, with 11 new
countries joining the nuclear family.
Nuclear reactors are very capital intensive; therefore economics dictate that they need to be
operated to the maximum as base-load power. As a consequence, demand for uranium is nearly
non-elastic. Ux Consulting (“UxCo”) has estimated in its “Uranium Market Outlook — Q1 2011”,
that uranium demand will grow from 185.2 million pounds of U3O8 in 2010 to 250.3 million pounds
in 2020.
While long-term demand is steadily growing, short-term demand is affected in a large part by
utilities’ uncovered requirements. Utilities normally purchase the majority of their fuel
requirements under long-term contracts. To the extent that they have uncovered demand in the
near term, they will purchase on the spot market which in turn affects the spot price.
Currently, the level of uncovered demand is relatively low, so utility buying is purely
discretionary and price driven.
Primary Uranium Supply
Uranium supply is the biggest variable in the supply-demand equation. During the time that the
accumulated inventories from over production in the 1970s were being drawn down, primary mine
production accounted for only approximately 50% of demand. A number of new mines, primarily in
Kazakhstan and Africa, have been brought into production over the last few years while others
are in various stages of development. However, production still only accounts for approximately
75% of demand and many more mines are required to meet the increasing future demand and to
replace mines that are being depleted.
UxCo has estimated in its “Uranium Market Outlook — Q1 2011” that existing mine production
plus new planned and potential mine production will increase primary uranium supply from an
estimated 139.6 million pounds in 2010 to 246.5 million pounds in 2020 falling short of
expected demand of 250.3 million pounds per year. The principal drivers for the increase in
primary mine production are expected to be Kazakhstan, which is projected to increase
production by over 40% between 2010 and 2020 and new, low-grade mines in Africa. However prices
will need to increase appreciably to support the additional higher cost production required to
meet these production forecasts.
Secondary Uranium Supply
Every year since 1985, world primary production has been less than uranium consumption and now
supplies only approximately 75% of demand. The balance of demand is supplied from secondary
sources such as remaining excess commercial inventories, reprocessing of spent fuel,
inventories held by governments and the downblending of highly-enriched uranium (“HEU”) from
nuclear weapons programs. By far, the most significant of the secondary supplies currently is
the 18 to 24 million pounds per year being provided from the HEU downblending program. The HEU
program is scheduled to terminate at the end of 2013. The supply gap created by this
termination will need to be made up from new primary mine production.
Excess commercial inventories, which were once one of the major sources of secondary supplies
during the period from the early 1970s to the early 2000s, have largely been consumed. The
disposition of government inventories held by the United States and Russia will have a market
impact over the next 10 to 20 years; however, the rate and timing of this material entering the
market is uncertain.
Reprocessing of spent fuel is another source of secondary supply but is expected to satisfy
only 3 to 4% of demand. Expansion of this secondary source would require major investments in
facilities which could only be supported by a significant increase in long-term prices.
UxCo expects that secondary sources of supply will fall from 50 million pounds to 19 million
pounds per year from now to 2020.
Uranium Prices
Most of the countries that use nuclear-generated electricity do not have a sufficient domestic
uranium supply to fuel their nuclear power reactors, and their electric utilities must secure
their required uranium supply by entering into medium-term and long-term contracts with foreign
uranium producers and other suppliers. These contracts usually provide for deliveries to begin
two to four years after they are signed and provide for four to ten delivery years. In awarding
medium-term and long-term contracts, electric utilities consider, in addition to the commercial
terms offered, the producer’s uranium reserves, record of performance and costs, all of which
are important to the producer’s or supplier’s ability to fulfill long-term supply commitments.
Prices are established by a number of methods, including base prices adjusted by inflation
indices, reference prices (generally spot price indicators, but also long-term reference
prices) and annual price negotiations. Contracts may also contain floor prices, ceiling prices
and other negotiated provisions. Under these contracts, the actual price mechanisms are usually
confidential. Electric utilities procure their remaining requirements through spot and
near-term purchases from uranium producers and other suppliers, including other utilities
holding excess inventory and from governments.
6 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
The long-term price moved in a narrow band in 2010. It began the year at $62.00 per pound U3O8,
went to a low of $58.00 in March 2010 and eventually ended the year at $65.00 per pound U3O8 at
December 31, 2010. Long-term prices are driven more by production cost and future supply-demand
forecasts than customer inventories. Long-term prices are less volatile than spot prices.
The spot price began 2010 at $44.50 per pound and remained in the $40 to $44 range for the
first half of the year. Beginning in July, spot prices began a steady rise per pound U3O8 to
end the year at $62.50 per pound. Prices continued to increase in the first quarter of 2011.
Competition
Uranium production is international in scope and is characterized by a relatively small number
of companies operating in only a few countries. The top ten producers accounted for over 90% of
the world’s primary mine supply in 2010.
Over 70% of the world’s production came from four countries, namely — Kazakhstan, Canada,
Australia and Namibia. Kazakhstan passed Canada in 2009 as the largest producer, a role Canada
had held for 17 years.
Marketing Uranium
Denison sells its uranium under a combination of long-term contracts and spot contracts. The
long-term contracts have a variety of pricing mechanisms, including fixed prices, base prices
adjusted by inflation indices and/or spot price or long-term contract reference prices. Time of
delivery during a year under long-term contracts is at the discretion of the customer, so the
Company’s delivery obligations may vary markedly from quarter to quarter. Spot sales are priced
at or near published industry spot prices.
In 2010, approximately 30% of Denison’s total sales volume was sold under long term contracts,
with the remainder sold in the spot market. The Company currently has three long-term contracts
in place. One contract, the KEPCO Offtake Agreement, is for 20% of the Company’s annual
production from any production source (±10%) but not less than 350,000 pounds (±10%) per year
from 2010 to 2015 inclusive. This agreement also provides for the purchase of 20% of production
after 2015 subject to certain conditions. The second contract is for delivery of 1,000,000
pounds of U3O8 from U.S. or Canadian production over a period of five years beginning in 2011.
The third contract is for 20% of production from the White Mesa mill during the years 2012 to
2017 inclusive, but not less than 200,000 pounds per year.
Denison will continue to seek long-term contracts at prices sufficient to support the
development of its mineral assets.
The Vanadium Market
As a consequence of the economic crisis that began in mid-2007, world steel production declined
significantly and remained at depressed levels throughout 2009. The global steel industry has
been undergoing a gentle recovery and has now surpassed 2008 production levels primarily due to
continued increases in production in China. Since 92% of the world demand for vanadium goes to
the steel industry, this has had a pronounced effect on the vanadium demand and price.
The chemical and titanium alloy industries are the other major consumers of vanadium with 4%
each of the world demand.
Vanadium adds strength to high performance steels and strengthens titanium where strength
combined with lightness is required for everything from golf clubs to aerospace applications.
As the demand for these high strength, high performance steels increases and as new uses are
developed for lightweight, high strength titanium, vanadium demand can be expected to increase
at a faster rate than the growth of global steel production. The average vanadium content in
steel in the developing countries is much lower than that in the developed countries and can be
expected to increase, adding to the demand.
While demand is expected to grow over time, supply has the capacity to increase to meet this
demand. Many primary producers from ore, in countries such as China, Russia and South Africa,
were shut down due to low prices. Production from steel making slag had been cut back or
halted. As demand increases and prices strengthen, some of these facilities can be expected to
restart or increase production thus moderating any anticipated price increases.
Spot prices during 2010 averaged $6.29 per pound ranging from a low of $5.25 per pound in early
January to a high of $7.25 in May. Prices for the last half of the year were steady at about
$6.20 per pound.
While long-term demand can be expected to increase, short-term demand is expected to be
relatively stable and prices should remain close if not slightly higher than their current
level throughout 2011.
Vanadium Marketing
Denison
sells its vanadium both as black flake
(V2O5) and as ferrovanadium (FeV) through spot
sales to industry end-users and to trading companies. Sales during 2010 have been principally
into the U.S. market; however, efforts are continuing to expand the Company’s market into
Europe, South America and the Far East.
Denison Mines Corp. Annual Report 2010 7
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
SELECTED ANNUAL FINANCIAL INFORMATION
The following selected financial information was obtained directly from or calculated using the
Company’s consolidated financial statements for the years ended December 31, 2010, December 31,
2009 and December 31, 2008.
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Three Months |
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Ended |
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Year Ended |
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Year Ended |
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Year Ended |
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Dec. 31, |
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Dec. 31, |
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Dec. 31, |
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Dec. 31, |
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| (in thousands) |
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2010 |
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2010 |
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2009 |
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2008 |
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Results of Operations: |
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Total revenues |
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$ |
39,232 |
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$ |
128,320 |
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$ |
79,170 |
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$ |
123,184 |
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Net income (loss) |
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(12,297 |
) |
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(14,235 |
) |
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(147,012 |
) |
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|
(80,648 |
) |
Basic earnings (loss) per share |
|
|
(0.04 |
) |
|
|
(0.04 |
) |
|
|
(0.51 |
) |
|
|
(0.42 |
) |
Diluted earnings (loss) per share |
|
|
(0.04 |
) |
|
|
(0.04 |
) |
|
|
(0.51 |
) |
|
|
(0.42 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As at Dec. 31, |
|
|
As at Dec. 31, |
|
|
As at Dec. 31, |
|
| |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position: |
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
137,098 |
|
|
$ |
75,578 |
|
|
$ |
34,655 |
|
Long-term investments |
|
|
2,955 |
|
|
|
10,605 |
|
|
|
10,691 |
|
Property, plant and equipment |
|
|
714,458 |
|
|
|
691,039 |
|
|
|
717,433 |
|
Total assets |
|
|
952,474 |
|
|
|
867,981 |
|
|
|
885,702 |
|
Total long-term liabilities |
|
$ |
131,373 |
|
|
$ |
127,931 |
|
|
$ |
249,716 |
|
RESULTS OF OPERATIONS
General
The Company recorded a net loss of $14,235,000 ($0.04 per share) for 2010 compared with net
loss of $147,012,000 ($0.51 per share) for 2009.
Revenues
Uranium sales revenue for the fourth quarter was $22,760,000 from the sale of 449,000 pounds
U3O8 at an average price of $49.97 per pound. Uranium sales for the same period in 2009 were
548,000 pounds U3O8 at an average price of $44.14 per pound resulting in revenue of
$24,800,000. Uranium revenue in the fourth quarter of 2010 also included amortization of the
fair value increment related to Denison Mines Inc. (“DMI”) sales contracts of $325,000 (2009 —
$622,000).
Uranium sales revenue for the year ended December 31, 2010 totalled $87,978,000. Sales were
1,839,000 pounds U3O8 at an average price of $47.67 per pound. For the year ended December 31,
2009, uranium sales revenue was $59,889,000 from the sale of 1,127,000 pounds U3O8 at an
average price of $51.17 per pound. Uranium revenue also included amortization of the fair value
increment related to DMI sales contracts of $325,000 (2009 — $2,313,000).
During the fourth quarter the Company sold 314,000 pounds of V2O5 at an average price of $6.34
per pound and 386,000 pounds of FeV at an average price of $12.70 per pound. In the fourth
quarter of 2009, the Company sold 11,000 pounds of V2O5 at an average price of $6.00 per pound
and 142,000 pounds FeV at an average price of $10.96 per pound. Total vanadium sales revenue
for the fourth quarter 2010 was $6,896,000 compared to $1,617,000 in the fourth quarter of
2009.
During the year ended December 31, 2010, the Company sold 1,003,000 pounds of FeV at an average
price of $13.40 per pound and 541,000 pounds V2O5 at an average price of $6.44 per pound. Total
vanadium sales revenue was $16,934,000. During the year ended December 31, 2009, the Company
sold 520,000 pounds of V2O5 at an average price of $3.73 per pound and 229,000 pounds as FeV at
an average price of $11.09 per pound. Total vanadium sales revenue was $4,480,000.
In 2010, Denison processed third party ore at its White Mesa mill under a toll milling
agreement. Revenue from toll milling totalled $4,963,000.
Revenue from the environmental services division for the three months and year ended December
31, 2010 was $4,221,000 and $15,492,000 compared to $3,985,000 and $12,226,000 in the same
periods in 2009. Revenue from the management contract with UPC for the three months and year
ended December 31, 2010 was $487,000 and $2,576,000 compared to $636,000 and $2,522,000 in the
same periods in 2009.
8 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Operating Expenses
Milling and Mining Expenses
The McClean Lake joint venture produced 1,731,000 pounds U3O8 for the year ended December 31,
2010 compared with 3,609,000 pounds
U3O8 for the year ended December 31, 2009. Denison’s 22.5% share of
production totalled 389,000 pounds for the 2010 period and 812,000 pounds for the 2009 period.
The feeding of ore to the McClean mill was completed in June and the mill was placed on
stand-by in August.
Canadian production costs 1 for the year were $30.63 (CDN$31.56) per pound U3O8 compared to
$27.51 (CDN$31.41) per pound U3O8 for 2009.
Inventory available for sale from Canadian production was 19,000 pounds U3O8 at December 31,
2010.
On June 30, 2009, the Canadian Nuclear Safety Commission (“CNSC”) renewed the operating licence
for the McClean Lake operation for a period of eight years to June 30, 2017. The Athabasca
Regional Government (the “ARG”), which is comprised of three First Nations and four provincial
communities from the Athabasca Basin, launched an application for a judicial review of CNSC’s
decision to grant the McClean Lake operating licence. ARG challenged the legality of the
licence renewal on the basis of issues related to the Federal and Provincial Governments’ duty
to consult with Aboriginal people. The initial hearing on this matter was held on June 8, 2010
and the judge issued his decision in September 2010, dismissing the application. ARG has
launched an appeal of this decision. An adverse decision by the Court could have an impact on
the timing of future production.
The White Mesa mill processed alternate feed materials throughout 2010. The mill began
processing of Colorado Plateau type ores in mid-March through to October. In November, the mill
processed a third party’s ore under a toll milling agreement and then began processing
Denison’s Arizona 1 ore in December. Uranium production during the quarter totalled 229,000
pounds U3O8 and 391,000 pounds V2O5 and totalled 1,053,000 pounds U3O8 and 2,347,000 pounds
V2O5 for the year ended December 31, 2010 compared to 107,000 pounds U3O8 and nil
V2O5 for the three months and 614,000 pounds U3O8
and 501,000 pounds V2O5 in the year ended December 31, 2009.
At December 31, 2010, a total of 92,800 tons of conventional ore was stockpiled at the mill
containing approximately 369,000 pounds U3O8 and 1,732,000 pounds V2O5.
The Company also had approximately 392,000 pounds U3O8 contained in alternate feed material
stockpiled at the mill at December 31, 2010.
Production costs 1 at White Mesa for the three months ended December 31, 2010 were $39.30 per
pound U3O8 and for the year ended December 31, 2010 were $38.46. Production costs were $32.66
per pound U3O8 in the three months ended December 31, 2009 and $60.33 for the year ended
December 31, 2009.
Inventory available for sale from U.S. production was 68,000 pounds U3O8, 679,000 pounds V2O5
and 11,000 pounds FeV at December 31, 2010.
On November 16, 2009, as amended on February 1, 2010, the Center for Biological Diversity,
Grand Canyon Trust, Sierra Club, Kaibab Band of Paiute Indians and Havasupai Tribe (the
“Plaintiffs”) filed a lawsuit against the U.S. Secretary of the Interior and the U.S. Bureau of
Land Management (“BLM”) (together, the “Defendants”) seeking an order declaring that the
Defendants have violated environmental laws in relation to the Company’s Arizona 1 mine, by not
requiring a new Plan of Operations in connection with the start of mining activities. The
Plaintiffs are also claiming that, if a new Plan of Operations is not required, the Defendants
failed to conduct a review of potential environmental impacts from the mine since the existing
Plan of Operations for the mine was approved by BLM in 1988. The Plaintiffs further claim that
all required permits have not been obtained for the mine under the Clean Air Act, and that, as
a result, BLM failed to take all actions necessary to prevent unnecessary degradation of the
public lands. The Plaintiffs are seeking an order declaring that the Defendants have violated
these environmental laws in relation to the Arizona 1 mine, and an injunction directing
operations to cease and stopping the Defendants from authorizing or allowing any further mining
or exploration operations at the Arizona 1 mine until BLM complies with all applicable laws. On
February 8, 2010 the Defendants filed an Answer to the Plaintiffs’ complaint denying the
foregoing allegations. Denison has been added as an intervener in this lawsuit, and believes
that each of these allegations is without legal merit; is not supported by the administrative
record; and should be dismissed.
On April 19, 2010, Plaintiffs filed a motion for a preliminary injunction to shut down
operations at the mine pending a decision on the merits of the case. A hearing on the motion
for an injunction was held on June 11, 2010, and on June 17, 2010 the judge denied the
Plaintiffs’ request for preliminary injunctive relief. On July 12, 2010, the Plaintiffs
appealed the ruling on the preliminary injunction to the Ninth Circuit Court of Appeals, and on
July 14, 2010 filed another motion for preliminary injunction, pending appeal. That motion was
denied by the judge on August 11, 2010. On August 16, 2010 the Plaintiff’s filed an emergency
motion for an injunction pending appeal in the Court of Appeals. On August 31, 2010, a
two-judge panel denied that motion. The appeal to the Court of Appeals of the district judge’s
original ruling denying the preliminary injunction was heard on January 14, 2011, and a
decision of the Court of Appeals is pending at this time. The original case is ongoing. If the
Plaintiffs are successful on the appeal or on the merits, the Company may be required to stop
mining activities at the Arizona 1 mine pending resolution of this matter. Any required
stoppage of mining could have a significant adverse impact on the Company.
| |
|
|
| 1 |
|
Production costs include the costs of mining the ore fed to the mill in the period plus the
costs of milling less a credit for vanadium produced in the period and excluding depreciation
and amortization, which is a non-GAAP measure. |
Denison Mines Corp. Annual Report 2010 9
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
In August 2009, the Arizona Department of Environmental Quality (“ADEQ”) issued an air quality
permit that authorized the restart and operation of the Arizona 1 mine. Despite this
authorization by ADEQ and a previous authorization of construction and operation of the mine by
the United States Environmental Protection Agency (“EPA”) in 1988, EPA has alleged that a new
EPA approval is required at this time, notwithstanding the ADEQ permit. On May 3, 2010, EPA
issued a Finding of Violation to Denison alleging non-compliance with the provisions of the
Clean Air Act for not obtaining this second EPA approval and associated matters. EPA and
Denison are currently in discussions to settle this administrative action which may involve the
payment of a stipulated penalty.
On July 29, 2010, Uranium Watch, Living Rivers and Center for Water Advocacy (the “Pandora
Plaintiffs”) filed a lawsuit against the U.S. Forest Service (“USFS”) and the Forest Supervisor
for the Manti-La Sal National Forest (together, the “Pandora Defendants”) seeking an order
declaring that the Pandora Defendants have violated environmental laws in relation to the
Company’s Pandora mine, by not requiring an Environmental Assessment or Environmental Impact
Statement under the National Environmental Policy Act (“NEPA”) in connection with the USFS’s
approval of Plans of Operation authorizing the Company to construct two vent holes and drill 16
uranium exploration holes at the mine. The Pandora Plaintiffs are seeking an order declaring
that the Pandora Defendants have violated NEPA and vacating the USFS’ approval of the Plans of
Operation for these two projects, and enjoining the USFS from allowing the projects to proceed
pending full compliance with the law. The Pandora Plaintiffs also filed a motion for a
temporary restraining order and preliminary injunction against the commencement of the
projects. Denison has been added as an intervener in this lawsuit. A hearing on the motion for
a preliminary injunction was held on September 2, 2010, and on September 14, 2010 the judge
denied the Pandora Plaintiff’s request for preliminary injunctive relief. The original case is
ongoing. At this time, all of the exploration holes have been drilled and one of the two vent
holes has been installed.
On August 17, 2010, EPA issued a Notice of Violation under the Clean Air Act, citing four
violations of the National Emission Standards for Hazardous Air Pollutants for underground
uranium mines, relating to operations at Denison’s La Sal mines complex in Utah in 2009. Those
violations were for alleged failure to obtain prior approval from EPA for the radon monitoring
method used at the site, for some gaps in data collection and reporting, and for allegedly
exceeding the emission standards at certain receptors using the prescribed air dispersion
model. Denison has applied to EPA for approval to continue to use the radon monitoring method
at the site, which is the same method used historically by the uranium mining industry.
Similarly Denison does not believe the prescribed air dispersion model is sophisticated enough
to accurately calculate potential doses from radon to nearby receptors at the La Sal mines,
given the complex terrain and other factors at the site, and has applied to EPA for approval to
use a more sophisticated air dispersion model. The Clean Air Act provides that, when a person
is in violation of certain provisions of the Act, EPA may issue an administrative penalty,
issue an order requiring compliance with the requirements, or bring a civil action, among other
remedies. Administrative penalties can be based on the number of days of violation, the size of
the business, the economic benefit of non-compliance, the seriousness of the violation and
other factors, and can be significant. EPA has not issued an order or brought civil enforcement
action at this time.
Other
Operating costs for the three months and year ended December 31, 2010 include recoveries of
$82,000 and $13,191,000 respectively relating to the change in net realizable value provisions
on the Company’s uranium and vanadium inventory. For the three months and year ended December
31, 2009 operating costs include write-downs of $6,291,000 and $3,712,000 respectively relating
to the change in net realizable value provisions of the Company’s uranium and vanadium
inventory. Operating costs also include expenses relating to DES amounting to $4,189,000 for
the three months and $14,063,000 for the year 2010 compared to $3,886,000 and $11,432,000
respectively for the same periods in 2009.
Sales Royalties and Capital Taxes
Sales royalties on Canadian production and capital taxes totalled $201,000 and $2,325,000 for
the three months and year ended December 31, 2010 compared with $628,000 and $1,675,000 for the
same periods in 2009. Denison pays a Saskatchewan basic uranium royalty of 4% of gross uranium
sales after receiving the benefit of a 1% Saskatchewan resource credit. Denison also pays
Saskatchewan capital taxes based on the greater of 3.0% of gross uranium sales or capital tax
otherwise computed under the Corporation Capital Tax Act (Saskatchewan). The Government of
Saskatchewan also imposes a tiered royalty which ranges from 6% to 15% of gross uranium sales
after recovery of mill and mine capital allowances which approximate capital costs. The
Government of Saskatchewan, in conjunction with the uranium industry in Saskatchewan, is
reviewing the current tiered royalty structure with a view to altering it to better align it
with current and future industry economics.
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, the U.S., Mongolia and Zambia. For the three
months ended December 31, 2010 exploration expenditures totalled $1,547,000 and $7,526,000 for
the year ended December 31, 2010 as compared to $2,553,000 and $10,120,000 for the three months
and year ended December 31, 2009.
10 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
A majority of the exploration expenditures during 2010 were spent 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 29
other exploration projects including the Company’s 60% owned Wheeler River project. Denison’s
share of exploration spending on its Canadian properties totalled $1,157,000 of which
$1,135,000 was expensed in the statement of operations for the three months ended December 31,
2010 and totalled $6,038,000 of which $5,945,000 was expensed in the statement of operations
for the year ended December 31, 2010. For the three months ended December 31, 2009, Canadian
exploration spending totalled $2,330,000 of which $2,297,000 was expensed and totalled
$8,330,000 of which $7,726,000 was expensed for the year ended December 31, 2009.
Exploration expenditures of $262,000 for the three months and $566,000 for the year ended
December 31, 2010 were made on the Company’s properties in the United States primarily in the
Colorado Plateau.
Exploration expenditures of $129,000 for the three months ended December 31, 2010 ($121,000 for
the three months ended December 31, 2009) and of $970,000 for the year ended December 31, 2010
($2,054,000 for the year ended December 31, 2009) were incurred in Mongolia on the Company’s
joint venture properties. The Company has a 70% interest in the Gurvan Saihan Joint Venture
(“GSJV”) in Mongolia. The other parties to the joint venture are the Mongolian government as to
15% and Geologorazvedka, a Russian entity, as to 15%. Under the new Nuclear Energy Law, the
Government of Mongolia could acquire a 34% to 51% interest at no cost to the Government.
Denison is currently engaged with industry groups and trade representatives in Mongolia to
determine how the new law could be applied in practice. In October, the Company and Mon-Atom,
the Mongolian state owned uranium company and partner in the GSJV, signed a Memorandum of
Understanding (“MOU”). The purpose of the MOU is to establish a co-operative arrangement with
Mon-Atom to address the ownership issue in the context of existing agreements between the GSJV
and the Government of Mongolia and the Nuclear Energy Law and to establish the basis for
negotiation of an Investment Agreement. Discussions are also underway between industry groups
and the Mongolian Government in an effort to have some of the provisions amended in the Nuclear
Energy Law.
In Zambia, the Company was granted mining licences for its Mutanga and Dibwe properties in late
March. These licences are for a period of 25 years.
General and Administrative
General and administrative expenses totalled $4,898,000 for the three months ended December 31,
2010 compared with $3,085,000 for the three months ended December 31, 2009. For the year ended
December 31, 2010, general and administrative expenses totalled $14,312,000 compared to
$13,883,000 for the same period in 2009. General and administrative expenses consist primarily
of payroll and related expenses for personnel, contract and professional services and other
overhead expenditures. The increased expenditures in 2010 result from increased incentive
compensation, a donation to Lundin for Africa and an increase in litigation expenditures.
Stock Option Expense
Stock option expense totalled $594,000 and $1,831,000 for the three months and year ended
December 31, 2010 respectively. In fiscal 2009, stock option expense totalled $1,089,000 and
$3,847,000 for the three months and year ending December 31, 2009.
Other Income and Expenses
Other income (expense) totalled ($5,337,000) for the three months ended December 31, 2010
compared with $1,961,000 for the three months ended December 31, 2009. For the year ended
December 31, 2010, other income (expense) totalled $5,812,000 compared to $(14,551,000) for the
same period in 2009. This consists primarily of foreign exchange losses, interest expense and
investment disposal gains. Foreign exchange losses totalled $4,998,000 for the three months and
$8,003,000 for the year ended December 31, 2010. Other income also included a uranium sales
contract termination fee in 2010. In the second quarter, the Company agreed to terminate one of
its sales contracts in exchange for a termination fee of $11,000,000. The fee is payable in two
installments of $6,000,000 received in June 2010 and $5,000,000 due in March 2011.
OUTLOOK FOR 2011
Denison’s uranium production is expected to total 1.2 million pounds of U3O8 from ore in
stockpile and from the Beaver, Pandora and Arizona 1 mines and production from the alternate
feed circuit at the White Mesa Mill in the United States. Vanadium production is projected to
total approximately 2.2 million pounds of
V2O5. The White Mesa mill is anticipated to continue
processing conventional ore during most of 2011, except for scheduled maintenance shutdowns.
Production of alternate feed material will continue throughout 2011. The cash cost of
production is expected to average approximately $43.50 per pound of U3O8 net of vanadium
credits. The cash cost per pound reflects the impact of an increase of over 200% of the cost of
sulphuric acid as compared to 2010. Capital expenditures on the mines and mill facilities are
estimated at $9.7 million.
Uranium sales are forecast to be approximately 1.3 million pounds of U3O8 of which just over
500,000 pounds will be sold into long term contracts and the remainder will be sold on the spot
market. Vanadium sales are projected to be 2.8 million pounds
V2O5 in 2011.
Denison’s business development activities include advancement of its existing development stage
projects and exploration projects and the search for new potential acquisitions. These
activities, as part of its Five Year Business Development Plan, are aimed at increasing
Denison’s sustainable uranium production to at least 10 million pounds per year by 2020.
Denison Mines Corp. Annual Report 2010 11
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
In 2011, Denison will participate in exploration programs in Canada and the United States. The
total budget for these programs will be $15.0 million of which Denison’s share will be $8.8
million. The Wheeler River program at a total cost of $10.0 million (Denison’s share $6.0
million) represents the most significant of these programs. A 35,000 metre drilling program has
begun to test additional areas with known uranium mineralization along the same mineralized
trend hosting the Phoenix deposit.
Exploration work in Canada will also be carried out on the Moore Lake, Hatchet Lake, Murphy
Lake, Bell Lake, McClean Lake and Wolly projects at a total cost of $3.8 million (Denison’s
share $1.6 million). In the United States, drilling is planned on the Beaver mine trend and at
the Sunday Complex to outline potential resources which could extend the life of existing
operations on these properties. In Arizona, an exploration program on the Company’s DB1 breccia
pipe is planned. The total cost of the U.S. exploration program is $1.3 million.
Exploration and development activities will be restarted at the Company’s Mutanga project in
Zambia. A 17,000 metre exploration drill program will follow up on positive drilling results
obtained in 2008 and metallurgical test work will be undertaken to further define process
design criteria and operating costs. The Zambian program will total an estimated $6.2 million.
In Mongolia, a $7.4 million exploration and development program is projected. A $3.0 million,
38,000 metre exploration program is anticipated to be undertaken on license areas that
currently do not have defined resources in order to confirm resources and support future work
on these license areas. Development activities on license areas which are more advanced will
include drilling of initial test patterns and pilot plant design. The implementation of the
Mongolian program is contingent upon resolution of outstanding issues with the Mongolian
Government regarding the Nuclear Energy Law and the structure of the Gurvan Saihan Joint
Venture. The Company remains hopeful that these issues will be resolved early in 2011 such that
the planned programs can be completed.
In Canada and the U.S., a total of $6.4 million will be spent by Denison on development stage
projects in 2011. In the United States, development of the Pinenut mine is moving forward with
initial production anticipated in early 2012, and permitting will be advanced for the EZ1/EZ2
and Canyon deposits. The cost of these programs is estimated at $5.6 million. In Canada, the
McClean North underground development feasibility study will be advanced along with continued
evaluation of the Midwest development project under the operatorship of majority owner ARC.
SUMMARY OF QUARTERLY FINANCIAL RESULTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
| (in thousands) |
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
Total revenues |
|
$ |
39,232 |
|
|
$ |
39,883 |
|
|
$ |
27,230 |
|
|
$ |
21,975 |
|
Net income (loss) |
|
|
(12,297 |
) |
|
|
(9,521 |
) |
|
|
16,672 |
|
|
|
(9,089 |
) |
Basic and diluted earnings (loss) per share |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
|
|
0.05 |
|
|
|
(0.03 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
| (in thousands) |
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
Total revenues |
|
$ |
31,052 |
|
|
$ |
12,748 |
|
|
$ |
13,372 |
|
|
$ |
21,998 |
|
Net income (loss) |
|
|
(36,127 |
) |
|
|
(91,343 |
) |
|
|
(18,215 |
) |
|
|
(1,327 |
) |
Basic and diluted earnings (loss) per share |
|
|
(0.11 |
) |
|
|
(0.27 |
) |
|
|
(0.07 |
) |
|
|
(0.01 |
) |
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $97,554,000 at December 31, 2010 compared with $19,804,000 at
December 31, 2009. The increase of $77,750,000 was due primarily to cash provided by operations
of $35,551,000, sales of long-term investments of $8,118,000 and new common share issues
totalling $61,250,000 less expenditures on property, plant and equipment of $27,310,000.
Net cash provided by operating activities of $35,551,000 during the year ended December 31,
2010 is comprised of net loss for the year, adjusted for non-cash items and for changes in
working capital items. Significant changes in working capital items during the period include a
decrease in accounts payable and accrued liabilities of $4,004,000 and an increase of
$1,877,000 in inventories and a decrease of $5,176,000 in trade and other receivables.
Net cash used in investing activities was $19,472,000 consisting primarily of expenditures on
property, plant and equipment of $27,310,000 less proceeds from the sale of investments of
$8,118,000.
Net cash from financing activities totalled $60,565,000 consisting of $61,250,000 from the
issue of common shares less $685,000 repayment of debt obligations.
In total, these sources and uses of cash resulted in a net cash inflow after the effect of
foreign exchange of $77,750,000 during the year.
12 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
The Company has in place a $60,000,000 revolving term credit facility (“the credit facility”).
The credit facility contains three financial covenants, one based on maintaining a certain
level of tangible net worth, which must be greater than or equal to the sum of $665,000,000
plus an amount equal to (i) 50% of each equity issue after September 30, 2009 and 50% of
positive Net Income in each fiscal quarter from September 30, 2009, the second requiring a
minimum current ratio of 1.10 to 1 and the other requires the Company to reduce the borrowing
facility to $35,000,000 for a period of time each quarter before drawing further amounts. The
credit facility terminates on June 30, 2011. There is no debt outstanding under this facility;
however $19,816,000 of the line was used as collateral for certain letters of credit at
December 31, 2010.
The borrower under the facility is DMI and the Company has provided an unlimited full recourse
guarantee and a pledge of all of the shares of DMI. DMI has provided a first-priority security
interest in all present and future personal property and an assignment of its rights and
interests under all material agreements relative to the McClean Lake and Midwest projects. In
addition, each of the Company’s material US subsidiaries has provided an unlimited full
recourse guarantee secured by a pledge of all of its shares and a first-priority security
interest in all of its present and future personal property. The credit facility is subject to
a standby fee of 100 basis points.
In February 2011, the Company entered into an agreement with a syndicate of investment dealers
who have agreed to purchase 18,300,000 common shares of the Company at a purchase price of
CDN$3.55 per common share for aggregate gross proceeds of CDN$64,965,000. The offering is
scheduled to close on March 15, 2011.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
TRANSACTIONS WITH RELATED PARTIES
The Company is a party to a management services agreement with UPC. Under the terms of the
agreement, the Company will receive the following fees from UPC: a) a commission of 1.5% of the
gross value of any purchases or sales of uranium completed at the request of the Board of
Directors of UPC; b) a minimum annual management fee of CDN$400,000 (plus reasonable
out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon UPC’s net asset
value between CDN$100,000,000 and CDN$200,000,000 and 0.2% per annum based upon UPC’s net asset
value in excess of CDN$200,000,000; c) a fee of CDN$200,000 upon the completion of each equity
financing where proceeds to UPC exceed CDN$20,000,000; d) a fee of CDN$200,000 for each
transaction or arrangement (other than the purchase or sale of uranium) of business where the
gross value of such transaction exceeds CDN$20,000,000 (“an initiative”); e) an annual fee up
to a maximum of CDN$200,000, at the discretion of the Board of Directors of UPC, for on-going
maintenance or work associated with an initiative; and f) a fee equal to 1.5% of the gross
value of any uranium held by UPC prior to the completion of any acquisition of at least 90% of
the common shares of UPC.
The following transactions were incurred with UPC for the periods noted below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
| |
|
Ended |
|
|
Ended |
|
|
Year Ended |
|
|
Year Ended |
|
| |
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees (including expenses) |
|
|
487 |
|
|
|
397 |
|
|
|
1,614 |
|
|
|
1,541 |
|
Commission fees on purchase and sale of uranium |
|
|
— |
|
|
|
239 |
|
|
|
962 |
|
|
|
981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
487 |
|
|
$ |
636 |
|
|
|
2,576 |
|
|
$ |
2,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, accounts receivable includes $281,000 (2009 — $117,000) due from UPC with
respect to the fees indicated above.
On November 18, 2010, the Company entered into a uranium concentrate loan agreement with UPC which
entitles the Company to borrow 150,000 pounds of U3O8 from UPC. The U3O8 loan is subject to a loan
fee and requires collateral in the form of an irrevocable standby letter of credit. The amounts
loaned were to be repaid by February 3, 2011 or a later date agreed to by both parties. On December
24, 2010, the Company issued a letter of credit in favour of UPC in the amount of $10,065,000 as
collateral for the U3O8 loan. On January 3, 2011, the Company borrowed 150,000 pounds of U3O8 from
UPC. On February 3, 2011, the repayment date for the U3O8 loan was amended to April 4, 2011 and the
letter of credit was increased to $12,045,000.
The Company has incurred management and administrative service fees of $82,000 (2009:$53,000) with
a company owned by the Chairman of the Company which provides corporate development, office
premises, secretarial and other services. At December 31, 2010, an amount of $nil (2009: $nil) was
due to this company.
In December 2010, the Company agreed to make a donation of $658,000 to Lundin for Africa, a
not-for-profit organization with a common director. At December 31, 2010, an amount of $658,000 was
due to this organization. Lundin for Africa has programs in Zambia, Mongolia and other countries.
Denison Mines Corp. Annual Report 2010 13
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Korea Electric Power Corporation (“KEPCO”)
In June 2009, Denison completed definitive agreements with KEPCO. The agreements included a
long-term offtake agreement which provides for the delivery to KEPCO of 20% of Denison’s annual
U3O8 production (±10%) but not less than 350,000 pounds (±10%) per year from 2010 to 2015
inclusive. KEPCO also purchased 58,000,000 common shares of Denison representing approximately
17% of the issued and outstanding capital as at the June 2009 share purchase. Pursuant to a
strategic relationship agreement, KEPCO is entitled to subscribe for additional common shares
in Denison’s future share offerings. KEPCO also has the right to require Denison to nominate
two persons designated by KEPCO to Denison’s board of directors if KEPCO holds at least a 15%
share interest in Denison (or one director if KEPCO’s share interest is between 5% and 15%).
Currently, KEPCO’s interest in Denison is approximately 15.8%.
OUTSTANDING SHARE DATA
At March 10, 2011, there were 366,360,915 common shares issued and outstanding and 6,026,014
stock options outstanding to purchase a total of 6,026,014 common shares for a total of
372,386,929 common shares on a fully-diluted basis. The Company has also agreed to issue an
additional 18,300,000 common shares under an equity financing which is scheduled to close on
March 15, 2011. Under its agreement with Denison, KEPCO is entitled to subscribe for 3,442,000
additional common shares that would allow it to maintain its existing shareholding level in
Denison. KEPCO has not yet indicated whether it will exercise its right.
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 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 Chief Financial Officer concluded that the Company’s disclosure controls and procedures
are effective.
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 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, 2010.
There has not been any change in the Company’s internal control over financial reporting that
occurred during the Company’s fourth fiscal quarter of 2010 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial
reporting.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s consolidated financial statements in conformity with generally
accepted accounting principles in Canada requires management to make judgments with respect to
certain estimates and assumptions. These estimates and assumptions, based on management’s best
judgment, affect the reported amounts of certain assets and liabilities, including disclosure
of contingent liabilities. On an ongoing basis, management re-evaluates its estimates and
assumptions. Actual amounts, however, could differ significantly from those based on such
estimates and assumptions.
Significant areas critical in understanding the judgments that are involved in the preparation
of the Company’s consolidated financial statements and the uncertainties inherent within them
include the following:
Depletion and Amortization of Property, Plant and Equipment
Depletion and amortization of property, plant and equipment used in production is calculated on
a straight line basis or a unit of production basis as appropriate. The unit of production
method allocates the cost of an asset to production cost based on current period production in
proportion to total anticipated production from the facility. Mining costs are amortized based
on total estimated uranium in the ore body. Mill facility costs to be amortized are reduced by
estimated residual values. In certain instances, the total anticipated production from a
facility will include estimated toll milling volume. If Denison’s estimated amounts to be
processed under toll milling arrangements prove to be significantly different from actual or
its reserves and resource estimates are different from actual (in the case where unit of
production amortization is used), there could be a material adjustment to the amounts of
depreciation and amortization to be recorded in the future.
Impairment of Long-Lived Assets
The Company’s long-lived assets consist of plant and equipment, mineral properties, and
intangible assets. Long-lived assets are assessed by management for impairment whenever events
or changes in circumstances indicate that the related carrying amounts may not be recoverable.
To test recoverability, the net book value of the long-lived asset is compared to the estimated
undiscounted future cash flows generated by their use and eventual disposal. Impairment is
measured as the excess of the carrying value over the fair value, determined principally by
discounting the estimated net future cash flows expected to be generated from the use and
eventual disposal of the related asset. In the event that the Company has insufficient
information about the long-lived asset to estimate future cash flows to test the recoverability
of the capitalized cost amounts, the Company will test for impairment by comparing the fair
value to the carrying amount without first performing a test for recoverability.
14 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Goodwill
The amount by which the purchase price of a business acquisition exceeds the fair value of
identifiable assets and liabilities acquired is goodwill. Goodwill is allocated to the
reporting units acquired based on management’s estimates of the fair value of each reporting
unit as compared to the fair value of the assets and liabilities of the reporting unit.
Estimates of fair value may be impacted by changes in commodity prices, currency exchange
rates, discount rates, level of capital expenditures, interest rate, operating costs and other
factors that may be different from those used in determining fair value. Changes in estimates
could have a material impact on the carrying value of the goodwill. For reporting units that
have recorded goodwill, the estimated fair value of the unit is compared to its carrying value
at least once each year, or when circumstances indicate that the value may have become
impaired. If the carrying value exceeds the estimated or implied fair value of goodwill, which
is equal to management’s estimate of potential value within the reporting unit, any excess of
the carrying amount of goodwill over the estimated or implied goodwill is deducted from the
carrying value of goodwill and charged to the current period earnings.
Inventory
The Company values its concentrate inventories, work in process and ore stockpiles at the lower
of cost or net realizable value at the end of the reporting period. Costs represent the average
cost, and include direct labour and materials costs, mine site overhead and depreciation and
depletion. Realizable value is based on commodity prices, which can be subject to significant
change from period-to-period.
Future Tax Assets and Liabilities
Future tax assets and liabilities are calculated using the asset and liability method. Under
the asset and liability method, future tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Future tax assets and
liabilities are measured using enacted or substantially enacted tax rates expected to apply
when the differences are expected to be recovered or settled. The effect on future tax assets
and liabilities of a change in tax rates is recognized in income in the period the change is
known. To the extent that the Company considers it to be more likely than not that a future tax
asset will be recovered, a tax asset will be set up, otherwise the Company provides a valuation
allowance against the excess. It is possible that changes could occur in the future that may
affect the recoverability of the carrying value of future tax assets and a write-down may be
required.
Provision for Other than Temporary Impairment in the Value of Investments
The Company reviews those investments that are classified as available for sale on a quarterly
basis and focuses its attention on investments for which the fair value has been below cost for
six months and on investments that have experienced significant declines in the market based on
critical events and current economic conditions, even if those investments have been below cost
for less than a six month period. When a loss in value is considered to be other than a
temporary impairment this is recognized in the results of operations. Provisions for other than
temporary impairment in the value of investments are reviewed on a regular basis and, if
appropriate, are increased if additional negative information becomes available. Any such
provisions are only released on the sale of the security.
Asset Retirement Obligations
Denison follows CICA Handbook section 3110, Asset Retirement Obligations, which requires that
the fair value of the full decommissioning cost of an asset be capitalized as part of property,
plant and equipment when the asset is initially constructed. In subsequent periods, Denison
then is required to recognize “interest” on the liability, to amortize the capital costs in a
rational and systematic manner, and to adjust the carrying value of the asset and liability for
changes in estimates of the amount or timing of underlying future cash flows. Denison has
accrued, in accordance with CICA Handbook Section 3110, its best estimate of the ongoing
reclamation liability in connection with the decommissioned Elliot Lake mine site and is
currently accruing its best estimate of its share of the cost to decommission its other mining
and milling properties. The costs of decommissioning are subject to inflation and to government
regulations, which are subject to change and often not known until mining is substantially
complete. A significant change in either may materially change the amount of the reclamation
liability accrual.
Stock-Based Compensation
Denison has recorded stock based compensation expense in accordance with the CICA handbook
section 3870, using the Black-Scholes option pricing model, based on its best estimate of the
expected life of the options, the expected volatility factor of the share price, a risk-free
rate of return, expected dividend yield and an expected forfeiture rate. The use of different
assumptions regarding these factors could have a significant impact on the amount of
stock-based compensation expense charged to income over time. Changes in these estimates will
only apply to future grants of options and the amounts amortized over the vesting period of
existing options should not change as a result.
Retiree Benefit Obligation
Denison has assumed an obligation to pay certain and limited retiree medical and dental
benefits and life insurance as set out in a plan to a group of former employees. Denison has
made certain assumptions and will retain an actuary at least once every three years to estimate
the anticipated costs related to this benefit plan. The actual cost to Denison of this plan
will be influenced by changes in health care practices and actuarial factors. While the plan
contains certain limits, changes in assumptions could affect earnings.
Denison Mines Corp. Annual Report 2010 15
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
NEW ACCOUNTING STANDARDS ADOPTED
The Company adopted the following new accounting standards issued by the CICA Handbook
effective January 1, 2010:
| |
(a) |
|
CICA Handbook Section 1582 “Business Combinations”, Section 1601 “Consolidated
Financial Statements” and Section 1602 “Non-Controlling Interests” which replace the
former CICA 1581 “Business Combinations” and CICA 1600 “Consolidated Financial Statements”
and establish a new section for accounting for a non-controlling interest in a subsidiary.
These sections provide the Canadian equivalent to FASB Statements No.141(R) “Business
Combinations” and No.160 “Non-Controlling Interests in Consolidated Financial Statements”.
CICA 1582 is effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period after January 1, 2011. CICA 1601
and CICA 1602 apply to interim and annual consolidated financial statements relating to
years beginning on or after January 1, 2011 although early adoption is permitted. CICA
1582, which replaces Handbook Section 1581, Business Combinations, establishes standards
for the measurement of a business combination and the recognition and measurement of
assets acquired and liabilities assumed. CICA 1601, which replaces Handbook Section 1600,
carries forward the existing Canadian guidance on aspects of the preparation of
consolidated financial statements subsequent to acquisition other than non-controlling
interests. CICA 1602 establishes guidance for the treatment of non-controlling interests
subsequent to acquisition through a business combination. The Company has early adopted
all three sections effective January 1, 2010. There was no impact to the Company’s
financial statements from adopting these standards. |
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
The CICA has issued the following accounting standards effective for the fiscal years beginning
on or after January 1, 2011:
| |
(a) |
|
In February 2008, the Accounting Standards Board announced that Canadian publicly
accountable enterprises will be required to adopt International Financial Reporting
Standards (“IFRS”) effective January 1, 2011. As a result, the Company will publish its
first consolidated financial statements, prepared in accordance with IFRS, for the quarter
ending March 31, 2011. The Company will also provide comparative data on an IFRS basis
including an opening balance sheet as at January 1, 2010. |
CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
The Company is in the process of converting its basis of accounting from Canadian GAAP to IFRS
to be effective in the first quarter report 2011. The conversion date for IFRS reporting is
January 1, 2011. The restatement for comparative purposes of amounts reported for the year
ended December 31, 2010 will also be required.
The conversion to IFRS from Canadian GAAP is a significant undertaking. Management has
established an IFRS project team that is staffed with both internal and external resources.
The implementation project plan consists of three phases:
| |
• |
|
Initial diagnostic phase |
| |
• |
|
Impact analysis and design phase |
The initial diagnostic phase was completed in third quarter 2008. The impact analysis and
design phase and the implementation phase were initiated in 2009 and efforts are continuing.
The impact analysis and design phase involves the selection of IFRS accounting policies by
senior management and review by the audit committee; the quantification of impact of changes to
the Company’s existing accounting policies on its opening IFRS balance sheet; and the
development of draft IFRS financial statements.
The implementation phase involves the implementation of required changes to the Company’s
information systems and procedures. It will culminate in the collection of financial
information necessary to prepare IFRS financial statements and audit committee approval of
financial statements.
During the fourth quarter, the preliminary calculation of the IFRS opening balance sheet
amounts for January 1, 2010 was completed and details are disclosed below. The Company also
made significant progress in the process of restating its interim financial statements for 2010
and the development of a framework for its first time IFRS financial statements. Additional
work that is underway includes implementation of information systems and internal control
changes required, none of which are significant.
16 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Preliminary IFRS Consolidated Opening Balance Sheet
Denison’s preliminary IFRS opening balance sheet at January 1, 2010 reflects the impact of the
applicable IFRS 1 elections that it expects to apply on its transition to IFRS. The opening
balance sheet also reflects the impact of accounting policy differences arising from the
transition from Canadian GAAP to IFRS. The opening consolidated IFRS balance sheet is
preliminary and the final opening balance sheet may reflect further adjustments relating to any
new IFRS pronouncements or other items that are identified through the first quarter 2011.
Reconciliation of Consolidated Balance Sheets as previously Reported Under Canadian GAAP and
IFRS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Preliminary |
|
| |
|
|
|
As at |
|
|
Effect of |
|
|
as at |
|
| |
|
|
|
December 31, 2009 |
|
|
Conversion to |
|
|
January 1, 2010 |
|
| (in thousands) (unaudited) |
|
REF |
|
Canadian GAAP basis |
|
|
IFRS |
|
|
IFRS basis |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
19,804 |
|
|
|
— |
|
|
|
19,804 |
|
Trade and other receivables |
|
|
|
|
13,773 |
|
|
|
— |
|
|
|
13,773 |
|
Inventories |
|
|
|
|
52,216 |
|
|
|
— |
|
|
|
52,216 |
|
Prepaid expenses and other |
|
A |
|
|
1,607 |
|
|
|
(3 |
) |
|
|
1,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,400 |
|
|
|
(3 |
) |
|
|
87,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories — ore in stockpiles |
|
|
|
|
1,530 |
|
|
|
— |
|
|
|
1,530 |
|
Investments |
|
|
|
|
10,605 |
|
|
|
— |
|
|
|
10,605 |
|
Prepaid expense and other |
|
|
|
|
287 |
|
|
|
— |
|
|
|
287 |
|
Restricted cash and investments |
|
|
|
|
21,656 |
|
|
|
— |
|
|
|
21,656 |
|
Property, plant and equipment |
|
B |
|
|
691,039 |
|
|
|
(369,644 |
) |
|
|
321,395 |
|
Intangibles |
|
|
|
|
4,436 |
|
|
|
— |
|
|
|
4,436 |
|
Goodwill |
|
C |
|
|
51,028 |
|
|
|
(51,028 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
|
867,981 |
|
|
|
(420,675 |
) |
|
|
447,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
D |
|
|
9,508 |
|
|
|
218 |
|
|
|
9,726 |
|
Current portion of long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post employment benefits |
|
|
|
|
380 |
|
|
|
— |
|
|
|
380 |
|
Reclamation and remediation obligations |
|
|
|
|
752 |
|
|
|
— |
|
|
|
752 |
|
Debt obligations |
|
|
|
|
869 |
|
|
|
— |
|
|
|
869 |
|
Other long-term liabilities |
|
|
|
|
313 |
|
|
|
— |
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,822 |
|
|
|
218 |
|
|
|
12,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
3,187 |
|
|
|
— |
|
|
|
3,187 |
|
Provision for post-employment benefits |
|
|
|
|
3,426 |
|
|
|
— |
|
|
|
3,426 |
|
Reclamation and remediation obligations |
|
|
|
|
17,154 |
|
|
|
— |
|
|
|
17,154 |
|
Debt obligations |
|
|
|
|
195 |
|
|
|
— |
|
|
|
195 |
|
Other long-term liabilities |
|
|
|
|
1,051 |
|
|
|
— |
|
|
|
1,051 |
|
Deferred income taxes |
|
E |
|
|
102,918 |
|
|
|
(88,856 |
) |
|
|
14,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,753 |
|
|
|
(88,638 |
) |
|
|
51,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
F |
|
|
849,488 |
|
|
|
848 |
|
|
|
850,336 |
|
Share purchase warrants |
|
|
|
|
5,830 |
|
|
|
— |
|
|
|
5,830 |
|
Contributed surplus |
|
|
|
|
39,922 |
|
|
|
— |
|
|
|
39,922 |
|
Deficit |
|
G |
|
|
(242,494 |
) |
|
|
(260,987 |
) |
|
|
(503,481 |
) |
Accumulated other comprehensive income |
|
H |
|
|
75,482 |
|
|
|
(71,898 |
) |
|
|
3,584 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
|
|
|
867,981 |
|
|
|
(420,675 |
) |
|
|
447,306 |
|
|
|
|
|
|
|
|
|
|
|
|
Denison Mines Corp. Annual Report 2010 17
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
References
| |
A. |
|
Prepaid and other assets |
| |
| |
|
|
Adjustment results from moving from the temporal to current rate
method of foreign exchange translation for Zambia prepaid assets. |
| |
B. |
|
Property, plant and equipment |
| |
|
|
|
|
Adjustment to property, plant and equipment assets to reflect impairment amount calculated in accordance with IFRS |
|
|
(325,849 |
) |
Adjustment results from moving from the temporal to current rate method of foreign exchange translation for
Zambia property, plant and equipment assets |
|
|
(23,577 |
) |
Adjustment to reflect the unwind of a deferred tax gross-up related to the acquisition of assets of OmegaCorp. |
|
|
(20,218 |
) |
Total adjustment to property, plant and equipment |
|
|
(369,644 |
) |
| |
C. |
|
Goodwill |
| |
| |
|
|
Impairment of goodwill as calculated in accordance with IFRS. |
| |
D. |
|
Accounts Payable |
| |
| |
|
|
Effect of using US GAAP accounting for flow through shares due to the absence of IFRS specific
guidance. |
| |
|
|
Recognition of the liability related to the “premium” between the quoted price of the
Company’s shares at the flow-through share closing date and the amount the investor pays for the
actual flow-through shares. |
| |
|
|
|
|
Elimination of deferred tax liability related to the acquisition
of OmegaCorp. |
|
|
(20,218 |
) |
Tax effects of other IFRS adjustments |
|
|
(68,638 |
) |
Total adjustment to deferred income taxes |
|
|
(88,856 |
) |
| |
F. |
|
Share Capital |
| |
| |
|
|
Effect of using US GAAP accounting for flow through shares due to the absence of IFRS specific
guidance |
| |
|
|
|
|
Adjustment results from moving from the temporal to current rate method of foreign exchange translation to
opening balances of Zambia |
|
|
(23,580 |
) |
Adjustment to reflect the unwind of a deferred tax gross-up related to the acquisition of assets of OmegaCorp. |
|
|
(20,218 |
) |
Adjustment to property, plant and equipment assets to reflect impairment amount calculated in accordance with IFRS |
|
|
(325,849 |
) |
Impairment of goodwill |
|
|
(51,028 |
) |
Effect of using US GAAP accounting for flow through shares |
|
|
(1,066 |
) |
Adjustment to deferred income taxes |
|
|
88,856 |
|
Reset of cumulative translation adjustment account to zero |
|
|
71,898 |
|
Total adjustment to deficit |
|
|
(260,987 |
) |
| |
H. |
|
Accumulated Other Comprehensive Income |
| |
| |
|
|
Adjustment to reset cumulative translation gains to zero as per IFRS 1 election for cumulative
translation differences. |
Elected IFRS 1 Exemptions from Full Retrospective Application
Denison’s transition to IFRS follows IFRS 1, which offers the possibility to utilize certain
exemptions from full retrospective application of IFRS. The Company evaluated the options available
in IFRS 1 and elected to adopt transitional implementation policies in the areas of business
combinations, cumulative translation differences and fair value as a deemed cost election. A
summary of these transitional accounting policies is given below.
| |
1. |
|
Business Combinations |
| |
| |
|
|
The Company elected to utilize the option in IFRS 1 to not apply IFRS 3 retrospectively to
business combinations completed prior to January 1, 2010. The impact of this policy decision is
that all prior business combinations will continue to be accounted for as they originally were
under Canadian GAAP. |
| |
2. |
|
Cumulative Translation Differences |
| |
| |
|
|
IFRS 1 provides the option to reset the cumulative translation account within other comprehensive
income to zero as of the date of transition to IFRS as an alternative to calculating the
retrospective cumulative translation adjustments required to be in compliance with the principles
of IAS 21 for the periods prior to transition. |
| |
3. |
|
Property, Plant and Equipment |
| |
| |
|
|
IFRS 1 provides the option to record assets, on an item by item basis, at fair value on
transition or at an earlier date as an alternative to full retrospective application of IFRS in
accounting for the assets. Denison chooses to adopt this transition policy on an asset by asset
basis for its property, plant and equipment and its mineral property assets. |
18 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year
Ended December 31, 2010
Adoption of IFRS 6 for Exploration and Evaluation Expenditures
Denison elected to adopt the provisions of IFRS 6 which allow the Company to continue with the
current accounting policies regarding the accounting for exploration and evaluation
expenditures, with the exception of impairment which must follow the guidance provided under
IFRS 6.
The current policy is to expense exploration expenditures on mineral properties not
sufficiently advanced. An exploration and evaluation asset will no longer be classified as such
when the technical feasibility and commercial viability of extracting a mineral resource are
demonstrable. Exploration and evaluation assets will be assessed for impairment, and any
impairment loss recognised, before reclassification.
With respect to impairment, the Company will follow the guidance under IFRS 6 which provides
examples of impairment triggering events that are applicable to exploration and evaluation
assets:
| |
1. |
|
Right to explore has, or will in the near future, expire and renewal is not
expected; |
| |
| |
2. |
|
Further exploration and evaluation expenditures are not budgeted or planned; |
| |
| |
3. |
|
Decision was made to discontinue activities due to lack of discovery; or |
| |
| |
4. |
|
Development is likely but the exploration and evaluation asset is unlikely to be
recovered in full. |
If an impairment triggering event is noted which may indicate that a write-down is appropriate,
an impairment test in accordance with IAS 36 shall be performed. Impairment assessments are
conducted at the level of cash-generating units (“CGU’s”), which is the lowest level for which
identifiable cash inflows are largely independent of the cash flows of other assets. For mining
and milling assets, the CGU’s have been defined based on geographical locations that are
consistent with the segments used for disclosure purposes.
Key IFRS Accounting Policies
The following is a summary of key IFRS accounting policies which differ significantly from the
comparable Canadian GAAP policies and which were applied in preparing the preliminary
consolidated IFRS balance sheet as of January 1, 2010.
Foreign Currency Translation
Items included in the financial statements of each consolidated entity in the Denison group are
measured using the currency of the primary economic environment in which the entity operated
(“the functional currency”). Primary and secondary indicators are used to determine the
functional currency (primary indicators have priority over secondary indicators). Primary
indicators include the currency that mainly influences sales prices and the currency that
mainly influences labour, material and other costs. Secondary indicators include the currency
in which funds from financing activities are generated and the currency in which receipts from
operating activities are usually retained. For our Canadian, U.S., Zambian and Mongolian
entitles, the local currency has been determined to be the functional currency.
The consolidated financial statements are presented in US dollars, which is the Company’s
reporting currency.
The financial statements of entities that have a functional currency that is different than the
reporting currency are translated into US dollars as follows: assets and liabilities at the
closing rate at the date of the statement of financial position; and income and expenses —at
the quarterly average rates (as this is considered a reasonable approximation to actual
transactional rates). All resulting changes are recognized in other comprehensive income as
cumulative translation adjustments.
Income Taxes
The accounting for future or deferred income taxes is fundamentally similar to the current
Canadian GAAP standard. However, there are some specific differences that impact deferred tax
balances or the amount reported in profit or loss for deferred taxes. Under Canadian GAAP, the
cost(benefit) of current and deferred income taxes is typically recognized as income or an
expense, and included in profit or loss for the period — except, amongst other items, where
any portion of the cost(benefit) relates to a capital transaction in the same period or an item
that is credited or charged directly to equity in the same period. Under IFRS, if the
transaction that gives rise to a temporary difference is recorded directly in equity, then the
cost(benefit) of current and deferred income taxes, whether in the same or a subsequent period,
is also recorded directly in equity (rather than in profit or loss). Under Canadian GAAP, where
an asset is acquired (other than in a business combination) and the tax basis is less than the
cost of the asset, a deferred tax liability is recognized on the asset acquisition, and is
added to the cost of the asset through a gross-up calculation. IFRS does not permit the
recognition of a deferred tax liability on the initial recognition of an asset, in a
transaction that is not a business combination. The carrying value of our deferred tax balances
have also changed to the extent that the accounting basis of various assets and liabilities
have been adjusted as part of the IFRS conversion.
Denison Mines Corp. Annual Report 2010 19
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Flow-Through Shares
Under Canadian GAAP, where flow-through shares are issued, they are initially recorded in share
capital at their issue price. When the issuing entity renounces the associated deductions (by
filing the prescribed forms) to the investors, the tax effect of the resulting temporary
difference is recorded as a cost of issuing the shares (a reduction in share capital). While
IFRS does not provide specific guidance on the accounting for flow-through shares, it is
generally agreed that the method required by the SEC — under US GAAP — is appropriate. As a
result, under IFRS, the proceeds from issuing flow-through shares are allocated between the
offering of shares and the sale of tax benefits. The allocation is based on the difference
(“premium”) between the quoted price of the company’s shares at the flow-through share closing
date and the amount the investor pays for the actual flow-through shares. A liability is
recognized for the premium and is extinguished when the tax effect of the temporary
differences, resulting from the renunciation, is recorded — with the difference between the
liability and the value of the tax assets renounced being recorded as a deferred tax expense.
If the flow-through shares are not issued at a premium, a liability is not established, and on
renunciation the full value of the tax assets renounced is recorded as a deferred tax expense.
Property, Plant and Equipment
Property, plant and equipment are recorded at acquisition or production cost, less accumulated
depreciation. Cost includes all expenditures incurred to prepare an asset for its intended use,
including the purchase price and installation costs, freight charges, duties and borrowing
costs. Depreciation is calculated on a straight line or unit of production basis as
appropriate. Where a straight line methodology is used, the assets are depreciated to their
estimated residual value over an estimated useful life which ranges from three to fifteen years
depending upon the asset type. Where a unit of production methodology is used, the assets are
depreciated to their estimated residual value over the useful life defined by management’s best
estimate of recoverable reserves and resources in the current mine plan.
Mineral Property Interests
With respect to exploration and evaluation expenditures, the company has adopted the provisions
of IFRS 6.
Mineral property costs include acquisition costs relating to acquired mineral use and
exploration rights and are capitalized.
Once a development mineral property goes into commercial production, the property is classified
as “Producing” and the accumulated costs are amortized over the estimated recoverable resources
in the current mine plan using a unit of production basis. Commercial production occurs when a
property is substantially complete and ready for its intended use.
Mineral Properties — Joint Interests
The Company has various interests in development and exploration projects located in Canada
which are held through option or joint agreements. Under IFRS, the accounting treatment for
these properties will be as follows:
Canadian Properties
The Company has a 22.5% interest in the McClean Lake project and a 25.17% interest in the
Midwest project located in the Athabasca Basin of Saskatchewan, Canada. Other significant
mineral property interests that the Company has in Canada include Wheeler River, Moore Lake,
Wolly and Park Creek.
The accounting for these properties was reviewed within the context of the IFRS standards and
it was concluded that these joint interests are actually joint ownership arrangements (for
accounting purposes). The joint ownership and the contractual obligations are most
appropriately presented in the financial statements when they are accounted for using the
undivided interest method (which is very similar to the current proportional reporting method
used to report these operations under Canadian GAAP).
Impairment Evaluations
The carrying amounts of long-lived assets are reviewed and tested when events or changes in
circumstances suggest that the carrying amount may not be recoverable. Impairment assessments
are conducted at the level of cash-generating units (“CGU’s”), which is the lowest level for
which identifiable cash inflows are largely independent of the cash inflows of other assets.
For mining and milling assets, the CGU’s have been defined based on geographical locations that
are consistent with the segments used for disclosure purposes. This definition reflects the
strategic linkage of the properties from an operational perspective and/or the management
decision-making structure of the operations. Denison Environmental Services (DES) is a distinct
business offering and represents a separate CGU.
Impairment Reversals
Where an adjustment to property, plant and equipment assets has been made to reflect impairment
amounts calculated in accordance with IFRS and subsequent IFRS 1 election to use fair market
values as deemed cost, there will be no future reversal of impairments.
20 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Provision for Environmental Rehabilitation
Mining, extraction and processing activities normally give rise to obligations for
environmental rehabilitations. Provisions for the cost of each rehabilitation program are
normally recognized at the time that an environmental disturbance occurs or a constructive
obligation is determined. When the extent of disturbance increases over the life of an
operation, the provision is increased accordingly.
When provisions for closure and rehabilitation are initially recognized, the corresponding cost
is capitalized as an asset, representing part of the cost of acquiring the future economic
benefits of the operation. The capitalized cost of closure and rehabilitation activities is
recognized in property, plant and equipment and depreciated over the future production from the
operations to which it relates.
Significant judgments and estimates are involved in forming expectations of future activities
and the amount and timing of the associated cash flows. Those expectations are formed based on
existing environmental and regulatory requirements or, if more stringent, our environmental
policies which give rise to a constructive obligation. When expected cash flows change, the
revised cash flows are discounted using the risk-free pre-tax discount rate and adjustment is
made to the provision.
Adjustments to the estimated amount and timing of future closure and rehabilitation cash flows
are a normal occurrence in light of the significant judgment and estimates involved.
CONTRACTUAL OBLIGATIONS
At December 31, 2010, the Company had reclamation liabilities of $17,565,000 consisting of
$6,383,000 for U.S. mill and mine obligations, $9,451,000 for Elliot Lake and $1,731,000 for
the McClean Lake and Midwest joint ventures.
In addition, the Company’s contractual obligations at December 31, 2010 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After |
|
| |
|
Total |
|
|
1 Year |
|
|
2–3 Years |
|
|
4–5 Years |
|
|
5 Years |
|
Debt Obligations |
|
$ |
405 |
|
|
$ |
200 |
|
|
$ |
189 |
|
|
$ |
16 |
|
|
$ |
— |
|
Operating lease and other obligations |
|
$ |
22,167 |
|
|
$ |
13,551 |
|
|
$ |
6,526 |
|
|
$ |
2,090 |
|
|
$ |
— |
|
ENVIRONMENTAL RESPONSIBILITY
The Company periodically reviews the anticipated costs of decommissioning and reclaiming its
mill and mine sites as part of its environmental planning process. Further, the Company
formally reviews the mill’s reclamation estimate annually with applicable regulatory
authorities. The mill and mine reclamation estimates at December 31, 2010 are $17,565,000 which
are expected to be sufficient to cover the projected future costs for reclamation of the mill
and mine operations. However, there can be no assurance that the ultimate cost of such
reclamation obligations will not exceed the estimated liability contained in the Company’s
financial statements.
The Company has posted bonds, letters of credit and trust funds as security for these
liabilities. At December 31, 2010, the amount of these restricted cash and investments and line
of credit collateralizing the Company’s reclamation obligations was $32,697,000.
The Company has detected some chloroform contamination at the White Mesa mill site that appears
to have resulted from the operation of a temporary laboratory facility that was located at the
site prior to and during the construction of the mill facility, and from septic drain fields
that were used for laboratory and sanitary wastes prior to construction of the mill’s tailings
cells. In April 2003, the Company commenced an interim remedial program of pumping the
chloroform contaminated water from the groundwater to the mill’s tailings cells. This will
enable the Company to begin clean up of the contaminated areas and to take a further step
towards resolution of this outstanding issue. Pumping from the wells continued in 2010. Denison
is continuing to work with the State of Utah to develop a long-term corrective action plan. A
draft of an action plan was submitted by Denison and is currently being reviewed by the State.
While the investigations to date indicate that this chloroform contamination appears to be
contained in a manageable area, the scope and costs of final remediation have not yet been
determined and could be significant.
Elevated concentrations of nitrate and chloride were observed in some monitoring wells at the
mill site in 2008 a number of which are upgradient of the mill’s tailings cells. Pursuant to a
Stipulated Consent Agreement with UDEQ, the Company retained INTERA, Inc., an independent
professional engineering firm, to investigate these elevated concentrations and to prepare a
Contamination Investigation Report for submittal to UDEQ. The investigation was completed in
2009 and the Contamination Investigation Report was submitted to UDEQ in January 2010. INTERA
concluded in the Report that: (1) the nitrate and chloride are co-extensive and appear to
originally come from the same source; and (2) the source is upgradient of the mill property and
is not the result of Mill activities. UDEQ has reviewed the Report, and has concluded that
further investigations are required before it can determine the source of the contamination and
the responsibility for clean up. UDEQ and Denison are finalizing a plan and schedule to conduct
further investigations. Although the contamination appears to be contained in a manageable
area, the scope and costs of final remediation have not yet been determined and, if determined
to be the responsibility of the Company, could be significant.
Denison Mines Corp. Annual Report 2010 21
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
RESEARCH AND DEVELOPMENT
The Company does not have a formal research and development program. Process development
efforts expended in connection with processing alternate feeds are included as a cost of
processing. Process development efforts expended in the evaluation of potential alternate feed
materials that are not ultimately processed at the mill are included in mill overhead costs.
The Company does not rely on patents or technological licences in any significant way in the
conduct of its business.
RISK FACTORS
There are a number of factors that could negatively affect Denison’s business and the value of
Denison’s common 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. This information, by its nature, is not all inclusive. It
is not a guarantee that other factors will not affect Denison in the future.
Current Global Financial Conditions
Current global financial conditions have been subject to increased volatility and numerous
financial institutions have either gone into bankruptcy or have had to be rescued by
governmental authorities. Access to public financing has been negatively impacted by both
sub-prime mortgages and the liquidity crisis affecting the asset-backed commercial paper market
and the effect of these events on Canadian and global credit markets. These factors may impact
the ability of Denison to obtain equity or debt financing in the future and, if obtained, on
terms favorable to Denison. If these increased levels of volatility and market turmoil
continue, Denison’s operations could be adversely impacted and the trading price of the common
shares could continue to be adversely affected.
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 in its financial condition or results of operations
as reflected in its periodic earnings reports. 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 may be limited if investment banks with research capabilities do not follow Denison’s
securities; lessening in trading volume and general market interest in Denison’s securities may
affect an investor’s ability to trade significant numbers of securities of Denison; 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, further reducing market liquidity. 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 Corporation may decline. If an
active market does not exist, investors may lose their entire investment in the Corporation. 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
If Denison raises additional funding by issuing additional equity securities, such financing
may substantially dilute the interests of shareholders of Denison and reduce the value of their
investment.
Volatility and Sensitivity to Market Prices
Because the majority of Denison’s revenues is derived from the sale of uranium and vanadium,
Denison’s net earnings and operating cash flow are closely related and sensitive to
fluctuations in the long and short term market price of
U3O8
and
V2O5. Among other factors,
these prices also affect the value of Denison’s reserves and the market price of Denison’s
common shares. Historically, these prices have fluctuated and have been and will continue to be
affected by numerous factors beyond Denison’s control.
With respect to uranium, such factors include, among others: demand for nuclear power,
political and economic conditions in uranium producing and consuming countries, 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 supply, including the supply from other secondary sources and
production levels and costs of production. With respect to vanadium, such factors include,
among others: demand for steel, political and economic conditions in vanadium producing and
consuming countries, world production levels and costs of production.
Although Denison employs various pricing mechanisms within its sales contracts to manage its
exposure to price fluctuations, there can be no assurance that such a program will be
successful.
22 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Ability to Maintain Obligations Under Credit Facility and Other Debt
Denison is required to satisfy certain financial covenants in order to maintain its good
standing under the credit facility. 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, that would cause
Denison to fail to satisfy its obligations under the Credit Facility 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 Credit Facility is secured by DMI’s main properties by a
pledge of the shares of DMI, and by the property of Denison’s material U.S. subsidiaries. If
Denison were to default on its obligations under the Credit Facility 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.
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 means of generating electricity. Because of unique
political, technological and environmental factors that affect the nuclear industry, 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. Sustained lower prices of oil, natural gas, coal and hydroelectricity may
result in lower demand for uranium concentrates. Technical advancements in 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.
Uranium Industry Competition and International Trade Restrictions
The international uranium industry, including the supply of uranium concentrates, is
competitive. Denison markets uranium in direct competition with supplies available from a
relatively small number of uranium mining companies, from excess inventories, including
inventories made available from decommissioning of nuclear weapons, from reprocessed uranium
and plutonium, from used reactor fuel, and from the use of excess Russian enrichment capacity
to re-enrich depleted uranium tails held by European enrichers in the form of UF6.
The supply 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 the largest markets for uranium in the world.
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
many mining companies 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 reserves or result in commercial mining
operations.
Replacement of Mineral Reserves and Resources
Denison’s mineral reserves and resources at its McClean Lake, Midwest, Wheeler River, Arizona
Strip, EZ Complex, Colorado Plateau, Henry Mountains, GSJV, Mutanga and Dibwe projects are
Denison’s sources of uranium concentrates. Unless other reserves and resources are discovered
or extensions to existing ore bodies are found, Denison’s sources of production for uranium
concentrates will decrease over time as its current 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 reserves and resources. In addition, while Denison believes
that many of its properties will eventually be put into production, there can be no assurance
that they will be, or that they will be able to replace production.
Imprecision of Mineral Reserve and Resource Estimates
Mineral reserve and resource figures are estimates, and no assurances can be given that the
estimated levels of uranium and vanadium will be produced or that Denison will receive the
prices assumed in determining its reserves and resources. Such estimates are expressions of
judgment based on knowledge, mining experience, analysis of drilling results and industry
practices. Valid estimates made at a given time may significantly change when new information
becomes available. While Denison believes that the reserve and resource estimates included are
well established and reflect management’s best estimates, by their nature, reserve and resource
estimates are imprecise and depend, to a certain extent, upon statistical inferences which may
ultimately prove unreliable. Furthermore, market price fluctuations, as well as increased
capital or production costs or reduced recovery rates, may render ore reserves and resources
containing lower grades of mineralization uneconomic and may ultimately result in a restatement
of reserves and resources. The evaluation of reserves or resources is always influenced by
economic and technological factors, which may change over time.
Denison Mines Corp. Annual Report 2010 23
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Decommissioning and Reclamation
As owner and operator of the White Mesa mill and numerous uranium and uranium/vanadium mines
located in the United States and as 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. Most, but not all, of the Company’s reclamation obligations are
bonded, and cash and other assets of the Company have been reserved to secure this bonded
amount. 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.
Decommissioning plans for the Company’s properties have been filed with applicable regulatory
authorities. These regulatory authorities have accepted the decommissioning plans in concept,
not upon a detailed performance forecast, which has not yet been generated. As Denison’s
properties approach or go into decommissioning, further regulatory review of the
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 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.
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 local governments, and in Canada, by First Nations and Metis.
The validity of unpatented mining claims on U.S. public lands is sometimes difficult to confirm
and may be contested. Due to the extensive requirements and associated expense required to
obtain and maintain mining rights on U.S. public lands, Denison’s U.S. properties are subject
to various title uncertainties which are common to the industry or the geographic location of
such claims, with the attendant risk that there may be defects in its title. In addition, the
BLM has proposed that certain lands around the Grand Canyon National Park, including the lands
on which Denison’s Arizona Strip mines are located, be withdrawn by Congress from location and
entry under the mining laws, and is in the process of conducting various studies and analyses
to support a final decision on whether or not to proceed with a withdrawal of all or a portion
of those lands. If any lands are withdrawn, no new mining claims may be filed on the lands and
no new plans of operations may be approved, other than plans of operations on mining claims
that were valid at the time of withdrawal and that remain valid at the time of plan approval.
Whether or not a mining claim is valid must be determined by a mineral examination conducted by
BLM. The mineral examination, which involves an economic evaluation of a project, must
demonstrate the existence of a locatable mineral resource and that the resource constitutes the
discovery of a valuable mineral deposit. Denison believes that its material Arizona Strip
projects are on valid mining claims that would withstand a mineral examination. Further,
certain of those projects have approved plans of operations which, absent modification, would
not require a mineral examination. However, there can be no guarantee that, if lands are
withdrawn and a mineral examination is performed, the mineral examination would not result in
one or more of Denison’s mining claims being considered invalid, which could prevent a project
from proceeding.
There is also a risk that Denison’s title to, or interest in, its properties outside the United
States may be subject to defects or challenges. This may be true particularly in countries
outside North America, where there may be less developed legal systems or where ownership
interests may become subject to political interference or changes in laws. If such defects
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.
Production Estimates
Denison prepares estimates of future production for particular operations. No assurance can be
given that production estimates will be achieved. Failure to achieve production estimates could
have an adverse impact on Denison’s future cash flows, earnings, results of operations and
financial condition. These production estimates are based on, among other things, the following
factors: the accuracy of reserve estimates; the accuracy of assumptions regarding ground
conditions and physical characteristics of ores, such as hardness and presence or absence of
particular metallurgical characteristics; and the accuracy of estimated rates and costs of
mining and processing and assumptions as to future commodity prices.
24 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Denison’s actual production may vary from estimates for a variety of reasons, including, among
others: actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical
and other characteristics; short term operating factors relating to the ore reserves, such as
the need for sequential development of ore bodies and the processing of new or different ore
grades; risk and hazards associated with mining; natural phenomena, such as inclement weather
conditions, underground floods, earthquakes, pit wall failures and cave-ins; and unexpected
labour shortages or strikes and varying conditions in the commodity markets.
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, personal injury or
death, environmental damage, delays in or interruption of or cessation of production from
Denison’s mines or processing facilities or in its exploration or development activities, delay
in or inability to receive regulatory approvals to transport its uranium concentrates, 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 mining and
processing, additional costs and risks are incurred by Denison 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 or 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
The Company maintains regulatory licences in order to operate its mills at White Mesa and
McClean Lake, all of which are subject to renewal from time to time and are required in order
for the Company to operate in compliance with applicable laws and regulations. In addition,
depending on 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 the Company has 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.
Nature of Exploration and Development
Exploration for and 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 establish reserves by drilling,
constructing mining and processing facilities at a site, developing metallurgical processes and
extracting uranium from ore. It is impossible to ensure that the current exploration and
development programs of Denison will result in profitable commercial mining operations or that
current production at existing mining operations will be replaced with new reserves.
Denison’s ability to sustain or increase its present levels of uranium production is dependent
in part on the successful development of new ore bodies and/or expansion of existing mining
operations. The economic feasibility of development projects is based upon many factors,
including, among others: the accuracy of reserve 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; 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 proven and probable reserves and cash operating costs are, to a
large extent, based upon detailed geological and engineering analysis. Denison also conducts
feasibility studies which 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.
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.
Denison Mines Corp. Annual Report 2010 25
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
Governmental Regulation and Policy Risks
The Company’s mining and milling operations and exploration activities, as well as the
transportation and handling of the products produced are subject to extensive regulation by
state, provincial and federal 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 has 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 as to whether to operate existing
mines, or, with respect to exploration and development properties, 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.
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.
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. In
addition, the international marketing of uranium is subject to governmental policies and
certain trade restrictions, such as those imposed by the suspension agreement between the
United States and Russia and the agreement between the United States and Russia related to the
supply of Russian HEU into the United States. Changes in these policies and restrictions may
adversely impact Denison’s business.
Operations in Foreign Jurisdictions
The Company owns uranium properties directly and through joint venture interests and is
undertaking uranium development programs in Mongolia and Zambia. As with any foreign operation,
these international properties and interests are subject to certain risks, such as the
possibility of adverse political and economic developments, foreign currency controls and
fluctuations, as well as risks of war and civil disturbances. Other events may limit or disrupt
activities on these properties, restrict the movement of funds, result in a deprivation of
contract rights or the taking of property or an interest therein by nationalization or
expropriation without fair compensation, increases in taxation or the placing of limits on
repatriations of earnings. No assurance can be given that current policies of Mongolia or
Zambia or the political situations within these countries will not change so as to adversely
affect the value or continued viability of the Company’s interest in these assets. As an
example, in July 2009, the Parliament of Mongolia enacted the New Law, which granted authority
to the Mongolian Nuclear Energy Agency and created a framework for all aspects of uranium
resource development in Mongolia.
There are a number of provisions under the New Law that could significantly adversely affect
the GSJV, in which Denison holds a 70% interest, including restrictions on the ability of a
licensee to transfer its licences or interests in its uranium properties, and the ability of
the Government of Mongolia to acquire a 34% to 51% interest, depending on the amount of
historic exploration on the property that was funded by the Government of Mongolia, in each
uranium property at no cost to the Government. Denison is currently engaged with industry
groups and trade representatives in Mongolia to determine how the New Law could be applied in
practice. Discussions are also underway between industry groups and the Mongolian Government in
an effort to have the Government amend some of these provisions. At this time, it is not clear
how the Mongolian Government will apply the New Law to the GSJV, in light of the existing
Mineral Agreement between the GSJV and the Government of Mongolia, or to licences held by the
GSJV that are not subject to the Mineral Agreement.
In addition, the Company may become involved in a dispute with respect to one of its foreign
operations and may become subject to the exclusive jurisdiction of a foreign court or may find
that it is not successful in subjecting foreign persons to the jurisdiction of the courts in
Canada. The Company may also be precluded from enforcing its rights with respect to a
government entity because of the doctrine of sovereign immunity.
26 Denison Mines Corp. Annual Report 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
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 countries 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.
Credit Risk
Denison’s sales of uranium and vanadium products and its environmental services expose Denison
to the risk of non-payment. Denison manages this risk by monitoring the credit worthiness of
its customers and requiring pre-payment or other forms of payment security from customers with
an unacceptable level of credit risk. Although Denison seeks to manage its credit risk
exposure, there can be no assurance that Denison will be successful, and it is possible that
some of Denison’s customers could fail to pay for the uranium or vanadium purchased or the
environmental services provided.
Currency Fluctuations
Most of Denison’s revenue is denominated in U.S. dollars; however, its operating costs are
incurred in the currencies of the United States, Canada, Mongolia and Zambia. Consequently,
changes in the relative value of the different currencies affect Denison’s earnings and cash
flows.
Capital Intensive Industry; Uncertainty of Funding
The exploration and development of mineral properties and the ongoing operation of mines
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 and vanadium 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 for the expansion of mining activities or to take
advantage of opportunities for acquisitions. There is no assurance that the Company will be
successful in obtaining required financing as and when needed on acceptable terms.
Dependence on Key Personnel and Qualified and Experienced Employees
Denison’s success will largely depend on the efforts and abilities of certain senior officers
and key employees. Certain of these individuals have significant experience in the uranium
industry. 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 will also depend on the availability of qualified and experienced employees
to work in Denison’s operations and Denison’s ability to attract and retain such employees. The
number of individuals with relevant mining and operational experience in this industry is
small.
Denison Mines Corp. Annual Report 2010 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31, 2010
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 a 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
As at the date hereof, KEPCO holds indirectly a large shareholding in Denison and is
contractually entitled to board representation. Provided KEPCO holds over 15% of Denison’s
common shares, it is entitled to nominate two directors for election to the Board at any
shareholder meeting, and as long as it holds between 5% and 15% of Denison’s common shares, it
will be entitled to appoint one director. KEPCO’s shareholding level gives it significant
influence on decisions to be made by shareholders of Denison, and its right to nominate
directors may give KEPCO significant influence on decisions made by Denison’s Board. Although
KEPCO’s director nominees will be subject to duties under the OBCA to act in the best interests
of Denison as a whole, KEPCO’s director nominees are likely to be employees of KEPCO and may
give special attention to KEPCO’s interests as an indirect shareholder. The interests of KEPCO
as an indirect shareholder of Denison may not always be consistent with the interests of
Denison’s other shareholders, including, as a result of, its business relationship with
Denison.
The KEPCO strategic relationship agreement also includes provisions that will provide KEPCO
with 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 KEPCO 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 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 to support such an acquisition.
Conflicts of Interest
Some of the directors 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 will be that corporate opportunities presented to a director of Denison may
be offered to another company or companies with which the director is associated, and may not
be presented or made available to Denison. The directors 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 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 OBCA.
Reliance on ARC as Operator
As ARC is the operator and majority owner of the McClean Lake and Midwest properties in
Saskatchewan, Canada, Denison is and will be, to a certain extent, dependent on ARC for the
nature and timing of activities related to these properties and may be unable to direct or
control such activities.
Labour Relations
Both the McClean Lake mill and the Midwest properties employ unionized workers who work under
collective agreements. ARC, as the operator of both of these projects, is responsible for all
dealings with unionized employees. ARC may not be successful in its attempts to renegotiate the
collective agreements, which may impact mill and mining operations. Any lengthy work stoppages
may have a material adverse impact on the Company’s future cash flows, earnings, results of
operations and financial condition.
Indemnities
As part of a reorganization in 2004, DMI acquired from Denison Energy Inc. all of Denison
Energy’s mining and environmental services assets and agreed to assume all debts, liabilities
and obligations relating to such assets before the date of the reorganization. In addition, DMI
agreed to provide certain indemnities in favour of Denison Energy for certain claims and losses
relating to matters with respect to Denison Energy’s mining business prior to the date of the
arrangement, to breaches by DMI of certain of its agreements, covenants, representations and
warranties in the agreements governing such reorganization, and to damages caused by breaches
by DMI of its representations and warranties in certain agreements related to such arrangement.
Denison cannot predict the outcome or the ultimate impact of any legal or regulatory proceeding
against Denison or affecting the business of Denison and cannot predict the potential
liabilities associated with the indemnities provided in favour of Denison Energy. Consequently,
there can be no assurance that the legal or regulatory proceedings referred herein or any such
proceedings that may arise in the future will be resolved without a material adverse effect on
the business, financial condition, results of operation or cash flows of Denison.
QUALIFIED PERSON
The disclosure of scientific and technical information regarding Denison’s properties in the
MD&A was prepared by or under the supervision of William C. Kerr, the Company’s Vice-President,
Exploration and Terry Wetz, Director of Project Development, who are Qualified Persons in
accordance with the requirements of National Instrument 43-101.
28 Denison Mines Corp. Annual Report 2010
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Company’s management is responsible for the integrity and fairness of presentation of these
consolidated financial statements. The consolidated financial statements have been prepared by
management, in accordance with Canadian generally accepted accounting principles for review by
the Audit Committee and approval by the Board of Directors.
The preparation of financial statements requires the selection of appropriate accounting
policies in accordance with generally accepted accounting principles and the use of estimates
and judgments by management to present fairly and consistently the consolidated financial
position of the Company. Estimates are necessary when transactions affecting the current period
cannot be finalized with certainty until future information becomes available. In making
certain material estimates, the Company’s management has relied on the judgement of independent
specialists.
The Company’s management has developed and maintains a system of internal accounting controls
to ensure, on a reasonable and cost-effective basis, that the financial information is timely
reported and is accurate and reliable in all material respects and that the Company’s assets
are appropriately accounted for and adequately safeguarded.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, our
independent auditors. Their report outlines the scope of their examination and expresses their
opinions on the consolidated financial statements and internal control over financial
reporting.
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Ron F. Hochstein
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James R. Anderson |
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President and Chief Executive Officer
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Executive Vice-President and |
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Chief Financial Officer |
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March 10, 2011 |
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining adequate 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
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 at December 31, 2010.
The effectiveness of the Company’s internal control over financial reporting as at December 31,
2010 has been audited by PricewaterhouseCoopers LLP, our independent auditors, as stated in
their report which appears herein.
CHANGES TO INTERNAL CONTROL OVER FINANCIAL REPORTING
There has not been any change in the Company’s internal control over financial reporting that
occurred during 2010 that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Denison Mines Corp. Annual Report 2010 29
INDEPENDENT AUDITOR’S REPORT
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To the Shareholders of Denison Mines Corp. |
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We have completed integrated audits of the consolidated financial statements of Denison
Mines Corp. for 2010 and 2009 and of its internal control over financial reporting as at
December 31, 2010. Our opinions, based on our audits, are presented below. |
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Report on the consolidated financial statements |
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We have audited the accompanying consolidated financial statements of Denison Mines
Corp., which comprise the consolidated balance sheets as at December 31, 2010 and 2009 and the
consolidated statements of operations, shareholders’ equity and comprehensive loss and cash
flows for each of the years then ended, and the related notes including a summary of
significant accounting policies. |
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Management’s responsibility for the consolidated financial statements |
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Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with Canadian generally accepted accounting principles and
for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to
fraud or error. |
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Our responsibility is to express an opinion on these consolidated financial statements
based on our audits. We conducted our audits as at December 31, 2010 and 2009 and for the years
then ended in accordance with Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the consolidated financial
statements are free from material misstatement. Canadian generally accepted auditing standards
also require that we comply with ethical requirements. |
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An audit involves performing procedures to obtain audit evidence, on a test basis, about the
amounts and disclosures in the consolidated financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the company’s
preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated
financial statements. |
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We believe that the audit evidence we have obtained in our audits is sufficient and appropriate
to provide a basis for our audit opinion on the consolidated financial statements. |
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In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of Denison Mines Corp. and its subsidiaries as at December 31,
2010 and 2009 and the results of their operations and cash flows for the years then ended in
accordance with Canadian generally accepted accounting principles. |
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Report on internal control over financial reporting |
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We have also audited Denison Mines Corp.’s internal control over financial reporting as
at December 31, 2010, based on criteria established in Internal Control — Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). |
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Management’s responsibility for internal control over financial reporting |
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Management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. |
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Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit. We conducted our audit of internal control over
financial reporting in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. |
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An audit of internal control over financial reporting includes obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we consider necessary in the
circumstances. |
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We believe that our audit provides a reasonable basis for our opinion on the company’s internal
control over financial reporting. |
30 Denison Mines Corp. Annual Report 2010
INDEPENDENT AUDITOR’S REPORT
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Definition of internal control over financial reporting |
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A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with Canadian generally accepted
accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with Canadian generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial
statements. |
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Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may deteriorate. |
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In our opinion, Denison Mines Corp. maintained, in all material respects, effective
internal control over financial reporting as at December 31, 2010 based on criteria established
in Internal Control — Integrated Framework issued by COSO. |
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Chartered Accountants, Licensed Public Accountants |
Toronto, Ontario
March 10, 2011
Denison Mines Corp. Annual Report 2010 31
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. dollars)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
97,554 |
|
|
$ |
19,804 |
|
Trade and other receivables (note 3) |
|
|
20,236 |
|
|
|
13,773 |
|
Inventories (note 4) |
|
|
32,387 |
|
|
|
52,216 |
|
Prepaid expenses and other |
|
|
1,917 |
|
|
|
1,607 |
|
|
|
|
|
|
|
|
|
|
|
152,094 |
|
|
|
87,400 |
|
|
|
|
|
|
|
|
|
|
Inventories — ore in stockpiles (note 4) |
|
|
2,204 |
|
|
|
1,530 |
|
Investments (note 5) |
|
|
2,955 |
|
|
|
10,605 |
|
Prepaid expenses and other |
|
|
104 |
|
|
|
287 |
|
Restricted cash and investments (note 6) |
|
|
22,946 |
|
|
|
21,656 |
|
Property, plant and equipment (note 7) |
|
|
714,458 |
|
|
|
691,039 |
|
Intangibles (note 8) |
|
|
3,794 |
|
|
|
4,436 |
|
Goodwill (note 9) |
|
|
53,919 |
|
|
|
51,028 |
|
|
|
|
|
|
|
|
|
|
$ |
952,474 |
|
|
$ |
867,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
13,753 |
|
|
$ |
9,508 |
|
Current portion of long-term liabilities: |
|
|
|
|
|
|
|
|
Post-employment benefits (note 10) |
|
|
402 |
|
|
|
380 |
|
Reclamation and remediation obligations (note 11) |
|
|
641 |
|
|
|
752 |
|
Debt obligations (note 12) |
|
|
200 |
|
|
|
869 |
|
Other long-term liabilities (note 13) |
|
|
— |
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
14,996 |
|
|
|
11,822 |
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
3,339 |
|
|
|
3,187 |
|
Provision for post-employment benefits (note 10) |
|
|
3,617 |
|
|
|
3,426 |
|
Reclamation and remediation obligations (note 11) |
|
|
16,924 |
|
|
|
17,154 |
|
Debt obligations (note 12) |
|
|
205 |
|
|
|
195 |
|
Other long-term liabilities (note 13) |
|
|
1,105 |
|
|
|
1,051 |
|
Future income tax liability (note 14) |
|
|
106,183 |
|
|
|
102,918 |
|
|
|
|
|
|
|
|
|
|
|
146,369 |
|
|
|
139,753 |
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Share capital (note 15) |
|
|
910,484 |
|
|
|
849,488 |
|
Share purchase warrants (note 16) |
|
|
5,830 |
|
|
|
5,830 |
|
Contributed surplus (notes 17 and 18) |
|
|
41,658 |
|
|
|
39,922 |
|
Deficit |
|
|
(256,729 |
) |
|
|
(242,494 |
) |
Accumulated other comprehensive income (note 19) |
|
|
104,862 |
|
|
|
75,482 |
|
|
|
|
|
|
|
|
|
|
|
806,105 |
|
|
|
728,228 |
|
|
|
|
|
|
|
|
|
|
$ |
952,474 |
|
|
$ |
867,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding common shares (note 15) |
|
|
366,200,665 |
|
|
|
339,720,415 |
|
|
|
|
|
|
|
|
Commitments and contingencies (note 25) |
|
|
|
|
|
|
|
|
Subsequent events (note 26) |
|
|
|
|
|
|
|
|
On Behalf of the Board of Directors:
| |
|
|
|
|
|
 |
Ron F. Hochstein
|
|
Catherine J.G. Stefan |
Director
|
|
Director |
See accompanying notes to the consolidated financial statements.
32 Denison Mines Corp. Annual Report 2010
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of U.S. dollars except for per share amounts)
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
|
Year Ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2010 |
|
|
2009 |
|
REVENUES (note 21) |
|
$ |
128,320 |
|
|
$ |
79,170 |
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
Operating expenses (note 20) |
|
|
122,549 |
|
|
|
98,145 |
|
Sales royalties and capital taxes |
|
|
2,325 |
|
|
|
1,675 |
|
Mineral property exploration |
|
|
7,526 |
|
|
|
10,120 |
|
General and administrative |
|
|
14,312 |
|
|
|
13,883 |
|
Stock option expense (note 18) |
|
|
1,831 |
|
|
|
3,847 |
|
Mineral properties impairment (note 7) |
|
|
— |
|
|
|
100,000 |
|
Intangibles impairment (note 8) |
|
|
— |
|
|
|
359 |
|
Goodwill impairment (note 9) |
|
|
— |
|
|
|
22,136 |
|
|
|
|
|
|
|
|
|
|
|
148,543 |
|
|
|
250,165 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(20,223 |
) |
|
|
(170,995 |
) |
Other income (expense) (note 20) |
|
|
5,812 |
|
|
|
(14,551 |
) |
|
|
|
|
|
|
|
Loss before taxes |
|
|
(14,411 |
) |
|
|
(185,546 |
) |
Income tax recovery (expense) (note 14): |
|
|
|
|
|
|
|
|
Current |
|
|
(355 |
) |
|
|
1,691 |
|
Future |
|
|
531 |
|
|
|
36,843 |
|
|
|
|
|
|
|
|
Net loss for the year |
|
$ |
(14,235 |
) |
|
$ |
(147,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.04 |
) |
|
$ |
(0.51 |
) |
Diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding (in thousands) |
|
|
|
|
|
|
|
|
Basic |
|
|
340,826 |
|
|
|
286,421 |
|
Diluted |
|
|
340,826 |
|
|
|
286,421 |
|
See accompanying notes to the consolidated financial statements.
Denison Mines Corp. Annual Report 2010 33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
(Expressed in thousands of U.S. dollars)
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
|
Year Ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2010 |
|
|
2009 |
|
Share capital |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
849,488 |
|
|
$ |
666,278 |
|
New shares issued — net of issue costs |
|
|
61,091 |
|
|
|
185,034 |
|
New shares issued under stock option plans |
|
|
159 |
|
|
|
— |
|
Fair value of stock options exercised |
|
|
95 |
|
|
|
— |
|
Renunciation of flow-through share liabilities |
|
|
(349 |
) |
|
|
(1,824 |
) |
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
910,484 |
|
|
$ |
849,488 |
|
|
|
|
|
|
|
|
Share purchase warrants |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
5,830 |
|
|
$ |
11,728 |
|
Warrants expired |
|
|
— |
|
|
|
(5,898 |
) |
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
5,830 |
|
|
$ |
5,830 |
|
|
|
|
|
|
|
|
Contributed surplus |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
39,922 |
|
|
$ |
30,537 |
|
Stock-based compensation expense |
|
|
1,831 |
|
|
|
3,847 |
|
Fair value of stock options exercised |
|
|
(95 |
) |
|
|
— |
|
Warrants expired |
|
|
— |
|
|
|
5,898 |
|
Warrants expired — tax effect |
|
|
— |
|
|
|
(360 |
) |
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
41,658 |
|
|
$ |
39,922 |
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
(242,494 |
) |
|
$ |
(95,482 |
) |
Net loss for the year |
|
|
(14,235 |
) |
|
|
(147,012 |
) |
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
(256,729 |
) |
|
$ |
(242,494 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
75,482 |
|
|
$ |
(4,709 |
) |
Unrealized gain (loss) on investments change — net of tax |
|
|
(2,490 |
) |
|
|
3,368 |
|
Foreign currency translation change |
|
|
31,870 |
|
|
|
76,823 |
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
104,862 |
|
|
$ |
75,482 |
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
$ |
806,105 |
|
|
$ |
728,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
Net loss for the year |
|
$ |
(14,235 |
) |
|
$ |
(147,012 |
) |
Unrealized gain (loss) on investments change — net of tax |
|
|
(2,490 |
) |
|
|
3,368 |
|
Foreign currency translation change |
|
|
31,870 |
|
|
|
76,823 |
|
|
|
|
|
|
|
|
Comprehensive income (loss) for the year |
|
$ |
15,145 |
|
|
$ |
(66,821 |
) |
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
34 Denison Mines Corp. Annual Report 2010
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of U.S. dollars)
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
|
Year Ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2010 |
|
|
2009 |
|
CASH PROVIDED BY (USED IN): |
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss for the year |
|
$ |
(14,235 |
) |
|
$ |
(147,012 |
) |
Items not affecting cash: |
|
|
|
|
|
|
|
|
Depletion, depreciation, amortization and accretion |
|
|
60,598 |
|
|
|
36,324 |
|
Investments impairment |
|
|
181 |
|
|
|
149 |
|
Mineral properties impairment |
|
|
— |
|
|
|
100,000 |
|
Intangibles impairment |
|
|
— |
|
|
|
359 |
|
Goodwill impairment |
|
|
— |
|
|
|
22,136 |
|
Stock-based compensation |
|
|
1,831 |
|
|
|
3,847 |
|
Gains on asset disposals |
|
|
(2,739 |
) |
|
|
(5,679 |
) |
Losses (gains) on restricted investments |
|
|
(207 |
) |
|
|
809 |
|
Non-cash inventory adjustments |
|
|
(12,655 |
) |
|
|
4,290 |
|
Future income tax recovery |
|
|
(531 |
) |
|
|
(36,843 |
) |
Foreign exchange |
|
|
8,003 |
|
|
|
17,476 |
|
Net change in non-cash working capital items (note 20) |
|
|
(4,695 |
) |
|
|
(38,298 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
35,551 |
|
|
|
(42,442 |
) |
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Decrease (increase) in notes receivable |
|
|
(880 |
) |
|
|
200 |
|
Purchase of investments |
|
|
(17 |
) |
|
|
(711 |
) |
Proceeds from sale of investments |
|
|
8,118 |
|
|
|
11,128 |
|
Expenditures on property, plant and equipment |
|
|
(27,310 |
) |
|
|
(38,850 |
) |
Proceeds from sale of property, plant and equipment |
|
|
1,566 |
|
|
|
1,914 |
|
Increase in restricted cash and investments |
|
|
(949 |
) |
|
|
(797 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(19,472 |
) |
|
|
(27,116 |
) |
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Decrease in debt obligations |
|
|
(685 |
) |
|
|
(99,620 |
) |
Issuance of common shares for cash: |
|
|
|
|
|
|
|
|
New share issues |
|
|
61,091 |
|
|
|
185,034 |
|
Exercise of stock options and warrants |
|
|
159 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
60,565 |
|
|
|
85,414 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
76,644 |
|
|
|
15,856 |
|
Foreign exchange effect on cash and cash equivalents |
|
|
1,106 |
|
|
|
742 |
|
Cash and cash equivalents, beginning of year |
|
|
19,804 |
|
|
|
3,206 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
97,554 |
|
|
$ |
19,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents comprised of: |
|
|
|
|
|
|
|
|
Cash |
|
|
46,846 |
|
|
|
19,804 |
|
Cash equivalents |
|
|
50,708 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
$ |
97,554 |
|
|
$ |
19,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure: |
|
|
|
|
|
|
|
|
Interest paid |
|
|
27 |
|
|
|
1,576 |
|
Income taxes paid (recovered) |
|
|
(1,369 |
) |
|
|
450 |
|
See accompanying notes to the consolidated financial statements.
Denison Mines Corp. Annual Report 2010 35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
| |
|
Denison Mines Corp. (“DMC”) is incorporated under the Business Corporations Act (Ontario)
(“OBCA”). Denison Mines Corp. and its subsidiary companies and joint ventures (collectively,
the “Company”) are engaged in uranium mining and related activities, including acquisition,
exploration and development of uranium bearing properties, extraction, processing, selling and
reclamation. The environmental services division of the Company provides mine decommissioning
and decommissioned site monitoring services for third parties. |
| |
|
The Company has a 100% interest in the White Mesa mill located in Utah, United States and a
22.5% interest in the McClean Lake mill located in the Athabasca Basin of Saskatchewan, Canada.
The Company has interests in a number of nearby mines at both locations, as well as interests
in development and exploration projects located in Canada, the United States, Mongolia and
Zambia, some of which are operated through joint ventures and joint arrangements. Uranium, the
Company’s primary product, is produced in the form of uranium oxide
concentrates (“U3O8”) and sold to various customers around the
world for further processing. Vanadium, a co-product of some of the
Company’s mines is also produced and is in the form of vanadium pentoxide, or
V2O5. The Company is also in the business of processing
uranium bearing waste materials, referred to as “alternate feed materials”. |
| |
|
Denison Mines Inc. (“DMI”), a subsidiary of DMC, is the manager of Uranium Participation
Corporation (“UPC”), a publicly-listed
investment holding company formed to invest substantially all of its assets in
U3O8 and uranium hexafluoride (“UF6”). The Company has no
ownership interest in UPC but receives various fees for management services and commissions
from the purchase and sale of U3O8 and UF6 by UPC. |
| |
|
References to “2010” and “2009” refer to the year ended December 31, 2010 and the year
ended December 31, 2009 respectively. |
| 2. |
|
SUMMARY OF SIGNIFICANT MINING INTERESTS AND ACCOUNTING POLICIES |
| |
| |
|
Basis of Presentation |
| |
|
These consolidated financial statements have been prepared by management in U.S. dollars,
unless otherwise stated, in accordance with Canadian generally accepted accounting principles
(“Canadian GAAP”). All adjustments considered necessary by management for fair presentation
have been included in these financial statements. Differences between Canadian GAAP and those
generally accepted accounting principles and practices in the United States (“U.S. GAAP”) that
would have a significant impact on these financial statements are disclosed in note 27. |
| |
|
Significant Mining Interests |
| |
|
The following table sets forth the Company’s ownership of its significant mining
interests that have projects at the development stage within them as at December 31, 2010: |
| |
|
|
|
|
|
|
| |
|
|
|
Ownership |
|
| |
|
Location |
|
Interest |
|
|
|
|
|
|
|
|
Through majority owned subsidiaries |
|
|
|
|
|
|
Arizona Strip |
|
USA |
|
|
100.00 |
% |
Henry Mountains |
|
USA |
|
|
100.00 |
% |
Colorado Plateau |
|
USA |
|
|
100.00 |
% |
Gurvan Saihan Joint Venture |
|
Mongolia |
|
|
70.00 |
% |
Mutanga |
|
Zambia |
|
|
100.00 |
% |
As interests in unincorporated joint ventures, or jointly controlled assets |
|
|
|
|
|
|
McClean Lake Joint Venture |
|
Canada |
|
|
22.50 |
% |
Midwest Joint Venture |
|
Canada |
|
|
25.17 |
% |
| |
|
Significant Accounting Policies |
The principal accounting policies and practices under Canadian GAAP followed by the Company
in the preparation of these financial statements are summarized below:
a) Principles of Consolidation
These consolidated financial statements include the accounts of DMC, its subsidiaries and its share
of assets, liabilities, revenues and expenses of jointly-controlled companies and unincorporated
ventures proportionate to the Company’s percentage ownership or participating interest. All
significant intercompany balances and transactions have been eliminated on consolidation.
The companies and ventures controlled by DMC are consolidated using the full consolidation method.
Control is defined as the direct or indirect power to govern a company’s financing, investing and
strategic operating policies without co-operation of others in order to benefit from its
activities.
36 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
The companies and ventures jointly controlled by DMC are consolidated using the
proportionate consolidation method. Joint control is deemed to exist when agreements exist that
require that material changes to the operating, investing and financing policies of such
company or venture be approved by a percentage of the participating interest sufficiently high
enough to prevent any one participant from exercising unilateral control. |
| |
|
The companies and ventures in which DMC exercises significant influence over financial policy
and management (“associates”) are accounted for using the equity method. In determining whether
significant influence exists, the Company evaluates a number of criteria including the
percentage of voting interest held, and representation on the board of directors or in senior
management. |
| |
|
Variable Interest Entities (“VIEs”) (which include, but are not limited to, special purpose
entities, trusts, partnerships and other legal structures) are consolidated by the Company if
it is the primary beneficiary who will absorb the majority of the entities expected losses and
/ or expected residual returns. |
b) Use of Estimates
| |
|
The presentation of consolidated financial statements in conformity with Canadian GAAP requires
the Company’s management to make estimates and assumptions that affect the amounts reported in
these financial statements and related note disclosures. Although the Company regularly reviews
the estimates and assumptions that affect these financial statements, actual results may be
materially different. Significant estimates and assumptions made by management relate to the
quantities and net realizable value of inventories, assumptions used in impairment testing and
valuation of long-lived assets, determination of reporting units and the valuation of reporting
units for goodwill determination, determination of useful lives, recoverability of and
reclamation obligations for property, plant and equipment and the evaluation of post-employment
benefits, future income taxes, contingent liabilities and stock-based compensation. |
c) Foreign Currency Translation
| |
|
The Company’s currency of measurement for its Canadian operations is the Canadian dollar. As
the Company’s reporting currency is the U.S. dollar, the Company applies the current rate
method for translation of the Company’s net investment in its self sustaining Canadian
operations. Assets and liabilities denominated in currencies other than the U.S. dollar are
translated at the exchange rate in effect at the balance sheet date. Revenues and expenses
denominated in currencies other than the U.S. dollar are translated at the average rate in
effect during the period. Foreign currency translation gains and losses are recorded in
accumulated other comprehensive income which will be recognized in the results of operations
upon the dilution or other reduction in equity of the net investment. |
| |
|
The Company’s fully integrated subsidiaries are translated into US dollars using the temporal
method. Under this method, monetary assets and liabilities are translated at the year-end
exchange rate and all other assets and liabilities are translated at applicable historical
exchange rates. Revenue and expense items are translated at the rate of exchange in effect at
the date the transactions are recognized in income. Realized exchange gains and losses and
currency translation adjustments are included in the results of operations as a component of
“Other income (expense)”. Foreign currency transactions are translated using the exchange rates
prevailing at the rate of exchange in effect at the date the transactions are recognized in
income. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation of monetary assets and liabilities denominated in foreign currencies
are included in the results of operations. |
d) Income Taxes
| |
|
Income taxes are accounted for using the liability method of accounting for future income
taxes. Under this method, current income taxes are recognized for the estimated income taxes
payable for the current period. Future income tax assets and liabilities are recognized based
on temporary differences between the financial statement carrying values of the existing assets
and liabilities and their respective income tax bases using enacted or substantively enacted
tax rates expected to apply to taxable income during the years in which the differences are
expected to be recovered or settled. The recognition of future income tax assets such as tax
losses available for carry forward are limited to the amount that is “more likely than not” to
be realized. |
e) Flow-Through Common Shares
| |
|
The Company’s Canadian exploration activities have been financed in part through the issuance
of flow-through common shares whereby the tax benefits of the eligible exploration expenditures
incurred under this arrangement are renounced to the subscribers. The foregone tax benefits to
the Company are recognized by reducing the proceeds received from these financings by the tax
effects of the renunciation to the subscribers at the time of renunciation by the Company. |
f) Cash and Cash Equivalents
| |
|
Cash and cash equivalents consist of cash on deposit and highly-liquid, short-term money market
instruments which, on acquisition, have terms to maturity of three months or less. Cash and
cash equivalents which are subject to restrictions that prevent its use for current purposes
are classified as restricted cash and cash equivalents. |
Denison Mines Corp. Annual Report 2010 37
| |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
g) Inventories
| |
|
Expenditures, including depreciation, depletion and amortization of assets, incurred in the
mining and processing activities that will result in future concentrate production are
deferred and accumulated as ore in stockpiles and in-process and concentrate inventories.
These amounts are carried at the lower of average cost or net realizable value (“NRV”). NRV
is the difference between the estimated future concentrate price (net of selling costs) and
estimated costs to complete production into a saleable form. |
| |
|
Stockpiles are comprised of coarse ore that has been extracted from the mine and is
available for further processing. Mining production costs are added to the stockpile as
incurred and removed from the stockpile based upon the average cost per ton or tonne of ore
produced from mines considered to be in commercial production. The current portion of ore in
stockpiles represents the amount expected to be processed in the next twelve months. |
| |
|
In-process and concentrate inventories include the cost of the ore removed from the
stockpile, a pro-rata share of the amortization of the associated mineral property, as well
as production costs incurred to process the ore into a saleable product. Processing costs
typically include labor, chemical reagents and directly attributable mill overhead
expenditures. Items are valued according to the first-in first-out method (FIFO) or at
weighted average cost, depending on the type of inventory or work-in-process. |
| |
|
Mine and mill supplies are valued at the lower of average cost and net realizable value as
measured by replacement cost. |
h) Investments
| |
|
Equity investments over which the Company does not exercise significant influence are
accounted for as available for sale securities. |
| |
|
Equity investments over which the Company exercises significant influence are accounted for
using the equity method, whereby the investment is initially recorded at cost and adjusted
to recognize the Company’s share of earnings or losses, reduced by dividends and
distributions received. |
i) Property, Plant and Equipment
| |
|
Property, plant and equipment |
| |
|
Property, plant and equipment are recorded at acquisition or production cost and
carried net of depreciation and impairment, if applicable. Depreciation is calculated on a
straight line or unit of production basis as appropriate. Where a straight line methodology
is used, the assets are depreciated to their estimated residual value over an estimated
useful life which ranges from three to fifteen years depending upon the asset type. Where a
unit of production methodology is used, the assets are depreciated to their estimated
residual value over the useful life defined by management’s best estimate of recoverable
reserves and resources in the current mine plan. When assets are retired or sold, the
resulting gains or losses are reflected in current earnings as a component of other income
or expense. |
| |
|
Mineral Property Acquisition, Exploration and Development Costs |
| |
|
Mineral property costs include acquisition costs relating to acquired mineral use and
exploration rights and are capitalized. |
| |
|
Exploration and development expenditures are expensed as incurred on mineral properties not
sufficiently advanced. At the point in time that a mineral property is considered to be
sufficiently advanced, all further expenditures for the current year and subsequent years
are capitalized as incurred. These costs will include costs of maintaining the site until
commercial production, costs to initially delineate the ore body, costs for shaft sinking
and access, lateral development, drift development and infrastructure development. Such
costs represent the net expenditures incurred and capitalized as at the balance sheet date
and do not necessarily reflect present or future values. |
| |
|
Once a development mineral property goes into commercial production, the property is
classified as “Producing” and the accumulated costs are amortized over the estimated
recoverable resources in the current mine plan using a unit of production basis. Commercial
production occurs when a property is substantially complete and ready for its intended use. |
| |
|
Impairment of Long-Lived Assets |
| |
|
Long-lived assets are assessed by management for impairment whenever events or changes
in circumstances indicate that the related carrying amounts may not be recoverable. To test
recoverability, the net book value of the long-lived asset is compared to the estimated
undiscounted future cash flows generated by their use and eventual disposal. Impairment is
measured as the excess of the carrying value over the fair value, determined principally by
discounting the estimated net future cash flows expected to be generated from the use and
eventual disposal of the related asset. In the event that the Company has insufficient
information about the long-lived asset to estimate future cash flows to test the
recoverability of the capitalized cost amounts, the Company will test for impairment by
comparing the fair value to the carrying amount without first performing a test for
recoverability. |
j) Asset Retirement Obligations
| |
|
Asset retirement obligations, any statutory, contractual or other legal obligation related
to the retirement of tangible long-lived assets, are recognized when such obligations are
incurred, if a reasonable estimate of fair value can be determined. These obligations are
measured initially at fair value and the resulting costs are capitalized and added to the
carrying value of the related assets. In subsequent periods, the liability is adjusted for
the accretion of the discount and the expense is recorded in the income statement. Changes
in the amount or timing of the underlying future cash flows are immediately recognized as an
increase or decrease in the carrying amounts of the liability and related assets. These
costs are amortized to the results of operations over the life of the asset. Reductions in
the amount of the liability are first applied against the amount of the net reclamation
asset on the books with any residual value being recorded in the statement of operations. |
38 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
The Company’s activities are subject to numerous governmental laws and regulations.
Estimates of future reclamation liabilities for asset decommissioning and site restoration are
recognized in the period when such liabilities are incurred. These estimates are updated on a
periodic basis and are subject to changing laws, regulatory requirements, changing technology
and other factors which will be recognized when appropriate. Liabilities related to site
restoration include long-term treatment and monitoring costs and incorporate total expected
costs net of recoveries. Expenditures incurred to dismantle facilities, restore and monitor
closed resource properties are charged against the related reclamation and remediation
liability. |
k) Goodwill
| |
|
Business combinations are accounted for under the purchase method of accounting whereby
acquired assets and liabilities are recorded at fair value as of the date of acquisition. The
excess of the purchase price over the fair value is recorded as goodwill and allocated to the
applicable reporting unit. Goodwill is tested annually for impairment or more frequently if
current events or changes in circumstances indicate that the carrying value of the goodwill of
a reporting unit may exceed its fair value. A two-step impairment test is used to identify
potential impairment in goodwill and to measure the amount of goodwill impairment, if any. In
the first step, the fair value of a reporting unit is compared with its carrying value,
including goodwill. When the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not to be impaired and the second step of the
impairment test is not undertaken. When the carrying amount of a reporting unit exceeds its
fair value, the fair value of the reporting unit’s goodwill (determined on the same basis as
the value of goodwill is determined in a business combination) is compared with its carrying
amount to measure the amount of the impairment loss, if any. When the carrying amount of
reporting unit goodwill exceeds the fair value of the goodwill, an impairment loss is
recognized in an amount equal to the excess. |
l) Post-Employment Benefits
| |
|
The Company assumed the obligation of a predecessor company to provide life insurance,
supplemental health care and dental benefits, excluding pensions, to its former Canadian
employees who retired on immediate pension from active service prior to 1997. The estimated
cost of providing these benefits was actuarially determined using the projected benefits method
and is recorded on the balance sheet at its estimated present value. The interest cost on this
unfunded liability is being accreted over the remaining lives of this retiree group. |
m) Revenue Recognition
| |
|
Revenue from the sale of mineral concentrates to customers is recognized when persuasive
evidence of an arrangement exists, delivery has occurred under the terms of the arrangement,
the price is fixed or determinable and collection is reasonably assured. For uranium, revenue
is typically recognized when delivery is effected by book transfer at the applicable uranium
storage facility. For vanadium related products, revenue is typically recognized at the time of
shipment to the customer. |
| |
|
Revenue from toll milling services is recognized as material is processed in accordance with
the specifics of the applicable toll milling agreement. Revenue and unbilled accounts
receivable are recorded as related costs are incurred using billing formulas included in the
applicable toll milling agreement. |
| |
|
Revenue from alternate feed process milling is recognized as material is processed, in
accordance with the specifics of the applicable processing agreement. In general, the Company
collects a recycling fee for receipt of the material and/or receives the proceeds from the sale
of any uranium concentrate and other metals produced. Deferred revenues represent processing
proceeds received on delivery of materials but in advance of the required processing activity. |
| |
|
Revenue on environmental service contracts is recognized using the percentage of completion
method, whereby sales, earnings and unbilled accounts receivable are recorded as related costs
are incurred. Earnings rates are adjusted periodically as a result of revisions to projected
contract revenues and estimated costs of completion. Losses, if any, are recognized fully when
first anticipated. Revenues from engineering services are recognized as the services are
provided in accordance with customer agreements. |
| |
|
Management fees from UPC are recognized as management services are provided under the contract
on a monthly basis. Commission revenue earned on acquisition or sale of U3O8 and UF6 on behalf of UPC is recognized on the date when title passes to or from UPC. |
n) Stock-Based Compensation
| |
|
The Company uses a fair value-based method of accounting for stock options granted to
employees, including directors, and to non-employees. The fair value of stock options granted
is recognized on a straight-line basis over the applicable vesting period as an increase in
stock-based compensation expense and the contributed surplus account. When such stock options
are exercised, the proceeds received by the Company, together with the respective amount from
contributed surplus, are credited to share capital. |
o) Earnings (Loss) per Share
| |
|
Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the
weighted-average number of common shares outstanding for the period. The Company follows the
“treasury stock” method in the calculation of diluted earnings per share. Under this method,
the calculation of diluted earnings per share assumes that the proceeds to be received from the
exercise of “in the money” stock options and warrants are applied to repurchase common shares
at the average market price for the period. The diluted loss per share is equal to the basic
loss per share due to the anti-dilutive effect of the stock options and other dilutive
securities. |
Denison Mines Corp. Annual Report 2010 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
p) Financial Instruments — Recognition and Measurement / Presentation and Disclosure
| |
|
Financial assets and financial liabilities are recognized on the Consolidated Balance Sheet
when the Company becomes a party to the contractual provisions of the financial instrument.
All financial instruments are required to be measured at fair value on initial recognition
except for certain financial instruments that arise in related party transactions.
Measurement in subsequent periods is dependent upon the classification of the financial
instrument as held-for-trading, available-for-sale, loans and receivables, held-to-maturity,
or other financial liabilities. The held-for-trading classification is applied when an
entity is “trading” in an instrument or alternatively the standard permits that any
financial instrument be irrevocably designated as held-for-trading. For financial
instruments classified as other than held-for-trading, transaction costs are added to the
initial fair value of the related financial instrument. |
| |
|
Financial assets and financial liabilities classified as held-for-trading are measured at
fair value with changes in those fair values recognized on the Consolidated Statement of
Operations. Financial assets classified as available-for-sale are measured at fair value
with changes in those fair values recognized in other comprehensive income. Financial assets
classified as loans and receivables, held to maturity or other financial liabilities are
measured at amortized cost using the effective interest rate method of amortization. Where a
financial asset classified as held-to-maturity or available-for-sale has a loss in value
which is considered to be other than temporary, the loss is recognized in the results of
operations. |
| |
|
For financial instruments measured at amortized cost, transaction costs or fees, premiums or
discounts earned or incurred are recorded, at inception, net against the fair value of the
financial instrument. Interest expense is recorded using the effective interest method. |
| |
|
The Company has implemented the following classifications: |
| |
• |
|
Cash and cash equivalents (including restricted cash and investments) are
classified as held-for-trading and any period change in fair value is recorded
through the results from operations. |
| |
• |
|
Trade and other receivables and Notes receivable are classified as loans
and receivables and are measured at amortized cost using the effective interest rate
method. Interest income is recorded in net income, as applicable. |
| |
• |
|
Investments are classified as available-for-sale and any period change in
fair value is recorded through other comprehensive income. Where the investment
experiences an other-than-temporary decline in value, the loss is recognized in the
results of operations. |
| |
• |
|
Accounts payable and accrued liabilities and Debt obligations are
classified as other financial liabilities and are measured at amortized cost using
the effective interest rate method. Interest expense is recorded in other income, as
applicable. |
| |
|
New Accounting Standards Adopted |
| |
|
The Company adopted the following new accounting standards issued by the CICA Handbook
effective January 1, 2010: |
| |
a) |
|
CICA Handbook Section 1582 “Business Combinations”, Section 1601 “Consolidated Financial
Statements” and Section 1602 “Non-Controlling Interests” which replace the former CICA 1581
“Business Combinations” and CICA 1600 “Consolidated Financial Statements” and establish a
new section for accounting for a non-controlling interest in a subsidiary. These sections
provide the Canadian equivalent to FASB Statements No.141(R) “Business Combinations” and
No.160 “Non-Controlling Interests in Consolidated Financial Statements”. |
| |
|
CICA 1582 is effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period after January 1, 2011. CICA 1601
and CICA 1602 apply to interim and annual consolidated financial statements relating to
years beginning on or after January 1, 2011 although early adoption is permitted. CICA
1582, which replaces Handbook Section 1581, Business Combinations, establishes standards
for the measurement of a business combination and the recognition and measurement of
assets acquired and liabilities assumed. CICA 1601, which replaces Handbook Section 1600,
carries forward the existing Canadian guidance on aspects of the preparation of
consolidated financial statements subsequent to acquisition other than non-controlling
interests. CICA 1602 establishes guidance for the treatment of non-controlling interests
subsequent to acquisition through a business combination. The Company has early adopted
all three sections effective January 1, 2010. There was no impact to the Company’s
financial statements from adopting these standards. |
| |
|
Accounting Standards Issued but not yet Adopted |
| |
|
The CICA has issued the following accounting standards effective for the fiscal years
beginning on or after January 1, 2011: |
| |
a) |
|
In February 2008, the Accounting Standards Board announced that Canadian publicly
accountable enterprises will be required to adopt International Financial Reporting
Standards (“IFRS”) effective January 1, 2011. As a result, the Company will publish its
first consolidated financial statements, prepared in accordance with IFRS, for the quarter
ending March 31, 2011. The Company will also provide comparative data on an IFRS basis
including an opening balance sheet as at January 1, 2010. |
| |
|
Certain classifications of the comparative figures have been changed to conform to
those used in the current period. |
40 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 3. |
|
TRADE AND OTHER RECEIVABLES |
| |
|
The trade and other receivables balance consists of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Trade receivables — mineral concentrate sales |
|
$ |
5,631 |
|
|
$ |
9,422 |
|
Trade receivables-other |
|
|
6,903 |
|
|
|
2,114 |
|
Trade and other receivables in joint ventures |
|
|
375 |
|
|
|
928 |
|
Sales tax receivables |
|
|
228 |
|
|
|
1,127 |
|
Sundry receivables |
|
|
6,242 |
|
|
|
182 |
|
Note and lease receivables |
|
|
857 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
$ |
20,236 |
|
|
$ |
13,773 |
|
|
|
|
|
|
|
|
| |
|
The inventories balance consists of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Uranium concentrates and work-in-progress (1) |
|
$ |
9,769 |
|
|
$ |
19,921 |
|
Vanadium concentrates and work-in-progress (2) |
|
|
4,390 |
|
|
|
442 |
|
Inventory of ore in stockpiles |
|
|
14,772 |
|
|
|
28,366 |
|
Mine and mill supplies |
|
|
5,660 |
|
|
|
5,017 |
|
|
|
|
|
|
|
|
|
|
$ |
34,591 |
|
|
$ |
53,746 |
|
|
|
|
|
|
|
|
Inventories — by duration: |
|
|
|
|
|
|
|
|
Current |
|
$ |
32,387 |
|
|
$ |
52,216 |
|
Long-term — ore in stockpiles |
|
|
2,204 |
|
|
|
1,530 |
|
|
|
|
|
|
|
|
|
|
$ |
34,591 |
|
|
$ |
53,746 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
The Uranium concentrates and work-in-progress inventory is presented net of a
write-down of $nil as at December 31, 2010 and $5,910,000 as at December 31, 2009. |
| |
| (2) |
|
The Vanadium concentrates and work-in-progress inventory is presented net of a
write-down of $21,000 as at December 31, 2010 and $7,302,000 as at December 31, 2009. |
| |
|
Operating expenses include recoveries of $13,191,000 and write-downs of $3,712,000 relating
to the change in the net realizable value provisions of the Company’s uranium and vanadium
inventories for the years ending December 31, 2010 and 2009 respectively. |
| |
|
Long-term ore in stockpile inventory represents an estimate of the amount of pounds on the
stockpile in excess of the next twelve months of planned mill production. |
| |
|
The investments balance consists of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Investments |
|
|
|
|
|
|
|
|
Available for sale securities at fair value |
|
$ |
2,955 |
|
|
$ |
10,605 |
|
|
|
|
|
|
|
|
|
|
$ |
2,955 |
|
|
$ |
10,605 |
|
|
|
|
|
|
|
|
At December 31, 2010, investments consist of equity instruments of three publicly-traded companies
at a fair value of $2,955,000 (December 31, 2009: $10,605,000).
Denison Mines Corp. Annual Report 2010 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
During 2010, the Company sold equity interests in three public companies for cash
consideration of $8,118,000. The resulting gain of $3,333,000 has been included in other income
(expense) in the consolidated statements of operations (see note 20). |
| |
|
During 2009, the Company sold equity interests in three public companies for cash consideration
of $11,128,000. The resulting gain of $5,532,000 has been included in other income (expense) in
the consolidated statements of operations (see note 20). |
| |
|
During 2010, the Company acquired additional equity interests in one public company at a
cost of $17,000. |
| |
|
During 2009, the Company acquired additional equity interests in two public companies at a cost
of $711,000. |
| |
|
During 2010, the Company recorded impairment charges of $181,000 on its investments (see
note 20). |
| |
|
During 2009, the Company recorded impairment charges of $149,000 on its investments (see note
20). |
| 6. |
|
RESTRICTED CASH AND INVESTMENTS |
| |
|
The Company has certain restricted cash and investments deposited to collateralize its
reclamation obligations. The restricted cash and investments balance consists of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Cash |
|
$ |
504 |
|
|
$ |
23 |
|
Cash equivalents |
|
|
6,459 |
|
|
|
3,066 |
|
Investments |
|
|
15,983 |
|
|
|
18,567 |
|
|
|
|
|
|
|
|
|
|
$ |
22,946 |
|
|
$ |
21,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and investments — by item: |
|
|
|
|
|
|
|
|
U.S. mill and mine reclamation |
|
$ |
20,315 |
|
|
$ |
19,564 |
|
Elliot Lake reclamation trust fund |
|
|
2,631 |
|
|
|
2,092 |
|
|
|
|
|
|
|
|
|
|
$ |
22,946 |
|
|
$ |
21,656 |
|
|
|
|
|
|
|
|
U.S. Mill and Mine Reclamation
The Company has cash and cash equivalents and fixed income securities as collateral for
various bonds posted in favour of the State of Utah and the applicable state regulatory agencies in
Colorado and Arizona and the U.S. Bureau of Land Management for estimated reclamation costs
associated with the White Mesa mill and U.S. mining properties. In 2010, the Company had not
deposited any additional monies into its collateral account (2009: $nil).
Elliot Lake Reclamation Trust Fund
The Company has the obligation to maintain its decommissioned Elliot Lake uranium mine
pursuant to a Reclamation Funding Agreement effective September 30, 1994 (“Agreement”) with the
Governments of Canada and Ontario. The Agreement requires the Company to deposit 90% of cash flow,
after deducting permitted expenses, into the Reclamation Trust Fund. A subsequent amendment to the
Agreement provides for the suspension of this obligation to deposit 90% of cash flow into the
Reclamation Trust Fund, provided funds are maintained in the Reclamation Trust Fund equal to
estimated reclamation spending for the succeeding six calendar years, less interest expected to
accrue on the funds during the period. Withdrawals from this Reclamation Trust Fund can only be
made with the approval of the Governments of Canada and Ontario to fund Elliot Lake monitoring and
site restoration costs. In 2010, the Company withdrew $918,000 (CDN$950,000) (2009: $943,000
(CDN$1,034,000)) and deposited an additional $1,313,000 (CDN$1,358,000) into the Elliot Lake
Reclamation Trust Fund (2009: $1,109,000 (CDN$1,352,000)).
42 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 7. |
|
PROPERTY, PLANT AND EQUIPMENT |
| |
|
Property, plant and equipment consist of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Plant and equipment: |
|
|
|
|
|
|
|
|
Cost |
|
$ |
182,523 |
|
|
$ |
172,675 |
|
Construction-in-progress |
|
|
21,376 |
|
|
|
11,861 |
|
Accumulated depreciation |
|
|
(38,638 |
) |
|
|
(27,915 |
) |
|
|
|
|
|
|
|
|
|
$ |
165,261 |
|
|
$ |
156,621 |
|
|
|
|
|
|
|
|
Mineral properties: |
|
|
|
|
|
|
|
|
Cost |
|
$ |
721,338 |
|
|
$ |
686,457 |
|
Impairment |
|
|
(103,441 |
) |
|
|
(103,441 |
) |
Accumulated amortization |
|
|
(68,700 |
) |
|
|
(48,598 |
) |
|
|
|
|
|
|
|
|
|
$ |
549,197 |
|
|
$ |
534,418 |
|
|
|
|
|
|
|
|
Net book value |
|
$ |
714,458 |
|
|
$ |
691,039 |
|
|
|
|
|
|
|
|
Net book value — continuity summary: |
|
|
|
|
|
|
|
|
Opening |
|
$ |
691,039 |
|
|
$ |
717,433 |
|
Additions |
|
|
30,909 |
|
|
|
44,254 |
|
Depreciation and amortization |
|
|
(28,983 |
) |
|
|
(27,171 |
) |
Impairment |
|
|
— |
|
|
|
(100,000 |
) |
Write-down |
|
|
— |
|
|
|
(382 |
) |
Disposals |
|
|
(2,159 |
) |
|
|
(1,371 |
) |
Reclamation asset adjustment |
|
|
448 |
|
|
|
349 |
|
Foreign exchange |
|
|
23,204 |
|
|
|
57,927 |
|
|
|
|
|
|
|
|
|
|
$ |
714,458 |
|
|
$ |
691,039 |
|
|
|
|
|
|
|
|
Plant and Equipment — Mining
The Company has a 100% interest in the White Mesa mill located in Utah and mines located in
Arizona, Colorado and Utah. Mined ore from these mines is processed at the White Mesa mill.
The Company has a 22.5% interest in the McClean Lake mill and mines located in the Athabasca Basin
of Saskatchewan, Canada. The mill is currently on stand-by and is scheduled to remain so throughout
2011 and into 2012. A toll milling agreement has been signed with the participants in the Cigar
Lake joint venture that provides for the processing of a substantial portion of the future output
of the Cigar Lake mine at the McClean Lake mill, for which the owners of the McClean Lake mill will
receive a toll milling fee and other benefits. In determining the amortization rate for the McClean
Lake mill, the amount to be amortized has been adjusted to reflect Denison’s expected share of
future toll milling mill feed.
During 2009, the Company recorded a write-down of $382,000 associated with the planned disposal of
certain of its mining equipment at its McClean Lake mining operation. During 2010, the Company
completed the disposal of this equipment for proceeds of $1,455,000. The resulting realized loss on
disposal of $468,000 has been included in the amount reported in other income (expense) in the
consolidated statements of operations.
Plant and Equipment — Services and Other
The environmental services division of the Company provides mine decommissioning and
decommissioned site monitoring services for third parties.
Mineral Properties
The Company has various interests in development and exploration projects located in Canada,
the U.S., Mongolia and Zambia which are held directly or through option or joint venture
agreements. Amounts spent on development projects are capitalized as mineral property assets.
Exploration projects are expensed.
The most significant of the Company’s mineral property interests are as follows:
Canada
The Company has a 22.5% interest in the McClean Lake project and a 25.17% interest in the Midwest
project located in the Athabasca Basin of Saskatchewan, Canada. These projects are in the
development stage.
Denison Mines Corp. Annual Report 2010 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
Other significant mineral property interests that the Company has in Canada but which are
not yet in the development stage include: |
| |
a) |
|
Wheeler River — the Company has a 60% interest in
the project (located in the Athabasca Basin); |
| |
| |
b) |
|
Moore Lake — the Company has a 75% interest
in the project (located in the Athabasca Basin) subject to a 2.5% net smelter return royalty; |
| |
| |
c) |
|
Wolly — the Company has a 22.5% interest in the project (located in the Athabasca Basin);
and |
| |
| |
d) |
|
Park Creek — In the first quarter of 2006, the Company entered into an option agreement to
earn up to a 75% interest in the Park Creek project.
The Company is required to incur exploration expenditures of CDN$2,800,000 over three years
to earn an initial 49% interest and a further CDN$3,000,000 over six years to earn an
additional 26% interest. As at December 31, 2010, the Company has incurred a total of
CDN$4,218,000 towards the option and has earned a 49% ownership interest in the project under
the phase-in ownership provisions of the agreement. |
| |
|
The Company has 100% interests in various mines in the Colorado Plateau, Arizona Strip and
Henry Mountains mining districts located in Colorado, Arizona and Utah which are either in
operations, development or on standby. |
| |
|
The Company has a 70% interest in and is the managing partner of the Gurvan Saihan Joint
Venture in Mongolia. The results of the Gurvan Saihan Joint Venture have been included in these
financial statements on a consolidated basis since the Company exercises control. |
| |
|
The Company has a 100% interest in the Mutanga project located in Zambia. |
| |
|
In 2009, the Company tested the Mutanga project mineral property for impairment as a result of
additional information becoming available concerning estimated mining recoveries within the
current mine plan, increases in project cost estimates and a decline in the long term uranium
price outlook at the time. The carrying value of the project failed the stage one impairment
test based on the revised outlook. As a result, the Company undertook a stage two impairment
test and assessed the fair value of the Mutanga project by estimating the value of the
project’s resource potential based on published market value comparables for companies
operating in a similar geographical area. The Company assessed the comparability of the market
value data by looking at the nature of the mineral properties held by the other companies
including the size, stage of exploration and development, forecast cost structure, estimated
grade and political stability of the country in which the projects are located to determine an
appropriate fair value. |
| |
|
The Company recorded a pre-tax impairment charge of $100,000,000 representing the excess of
carrying value of the mineral property over the fair value derived during the stage two
impairment test. The impairment charge has been recorded in the Africa mining segment (see note
21). The Company also recorded a $30,000,000 future tax recovery as a result of the impairment
charge. |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Cost |
|
$ |
8,189 |
|
|
$ |
7,791 |
|
Impairment |
|
|
(359 |
) |
|
|
(359 |
) |
Accumulated amortization |
|
|
(4,036 |
) |
|
|
(2,996 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,794 |
|
|
$ |
4,436 |
|
|
|
|
|
|
|
|
Net book value — by item: |
|
|
|
|
|
|
|
|
UPC management services agreement |
|
|
|
|
|
|
|
|
Cost |
|
|
7,439 |
|
|
|
7,041 |
|
Accumulated amortization |
|
|
(3,645 |
) |
|
|
(2,605 |
) |
Urizon technology licenses |
|
|
|
|
|
|
|
|
Cost |
|
|
750 |
|
|
|
750 |
|
Accumulated amortization and impairment |
|
|
(750 |
) |
|
|
(750 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,794 |
|
|
$ |
4,436 |
|
|
|
|
|
|
|
|
Net book value — continuity summary |
|
|
|
|
|
|
|
|
Opening |
|
$ |
4,436 |
|
|
$ |
4,978 |
|
Impairment |
|
|
— |
|
|
|
(359 |
) |
Amortization |
|
|
(862 |
) |
|
|
(855 |
) |
Foreign exchange |
|
|
220 |
|
|
|
672 |
|
|
|
|
|
|
|
|
|
|
$ |
3,794 |
|
|
$ |
4,436 |
|
|
|
|
|
|
|
|
44 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
UPC Management Services Agreement |
| |
|
The UPC management services agreement is associated with the acquisition of DMI in 2006.
The contract is being amortized over its 8 year estimated useful life. |
| |
|
Urizon Technology Licenses |
| |
|
The Company has a 50% interest in a joint venture with Nuclear Fuel Services, Inc.
(“NFS”) (the “Urizon” joint venture). The purpose of the joint venture is to pursue an
alternate feed program for the White Mesa mill which is focused on a portion of the U.S.
Department of Energy (“DOE”) excess uranium inventories. NFS contributed its technology license
to the joint venture while the Company contributed $1,500,000 in cash together with its
technology license. The accounts of Urizon have been included in the Company’s consolidated
financial statements on a proportionate consolidation basis. The joint venture has no cash
flows arising from investing or financing activities. This Urizon technology license represents
the Company’s 50% interest in Urizon’s technology licenses. |
| |
|
As at December 31, 2009, the DOE material has not yet been processed and remains a component of
the DOE uranium management plan. Due to delays and uncertainty in the DOE’s plans for the
management of this material and the fact that the Urizon program may not ultimately be the
chosen disposition option, the Company has recorded a pre-tax impairment charge of $359,000 in
2009 to adjust the carrying value of the Urizon Technology license to $nil. The impairment
charge has been recorded in the U.S mining segment (see note 21). |
| |
|
A continuity summary of goodwill is presented below: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Goodwill, beginning of year |
|
$ |
51,028 |
|
|
$ |
63,240 |
|
Impairment charge |
|
|
— |
|
|
|
(22,136 |
) |
Foreign exchange |
|
|
2,891 |
|
|
|
9,924 |
|
|
|
|
|
|
|
|
Goodwill, end of year |
|
$ |
53,919 |
|
|
$ |
51,028 |
|
|
|
|
|
|
|
|
Goodwill — by business unit: |
|
|
|
|
|
|
|
|
Canada mining segment |
|
$ |
53,919 |
|
|
$ |
51,028 |
|
|
|
|
|
|
|
|
| |
|
The Company’s acquisition of DMI in 2006 was accounted for using the purchase method. The
excess of the purchase price over the fair value of the net assets acquired has been recorded
as goodwill. Under GAAP, goodwill is not amortized and is tested annually for impairment. The
goodwill has been allocated to the Company’s Canadian mining segment. |
| |
|
In 2009, based on management’s revised outlook for its Canada mining segment, the Company
recorded an impairment charge of $22,136,000 representing the carrying value of the goodwill in
excess of fair value. Fair value was determined by using estimated future net cash flows which
included estimated recoverable reserves, future consensus prices, future foreign exchange rates
and estimated operating and capital costs. |
| 10. |
|
POST-EMPLOYMENT BENEFITS |
| |
|
The Company provides post employment benefits for former Canadian employees who retired
on immediate pension prior to 1997. The post employment benefits provided include life
insurance and medical and dental benefits as set out in the applicable group policies but does
not include pensions. No post employment benefits are provided to employees outside the
employee group referenced above. The post employment benefit plan is not funded. |
| |
|
The effective date of the most recent actuarial valuation of the accrued benefit obligation is
December 1, 2008. The amount accrued is based on estimates provided by the plan administrator
which are based on past experience, limits on coverage as set out in the applicable group
policies and assumptions about future cost trends. The significant assumptions used in the
valuation are listed below. |
| |
|
|
|
|
|
Discount rate |
|
|
7.50 |
% |
Initial medical cost growth rate per annum |
|
|
11.00 |
% |
Medical cost growth rate per annum decline to |
|
|
5.00 |
% |
Year in which medical cost growth rate reaches its final level |
|
|
2014 |
|
Dental cost growth rate per annum |
|
|
4.00 |
% |
Denison Mines Corp. Annual Report 2010 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
Post-employment benefits consist of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Accrued benefit obligation |
|
$ |
3,820 |
|
|
$ |
3,594 |
|
Unamortized experience gain |
|
|
199 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
$ |
4,019 |
|
|
$ |
3,806 |
|
|
|
|
|
|
|
|
Post-employment benefits liability — by duration: |
|
|
|
|
|
|
|
|
Current |
|
$ |
402 |
|
|
$ |
380 |
|
Non-current |
|
|
3,617 |
|
|
|
3,426 |
|
|
|
|
|
|
|
|
|
|
$ |
4,019 |
|
|
$ |
3,806 |
|
|
|
|
|
|
|
|
Post-employment liability — continuity summary: |
|
|
|
|
|
|
|
|
Opening |
|
$ |
3,806 |
|
|
$ |
3,357 |
|
Benefits paid |
|
|
(266 |
) |
|
|
(281 |
) |
Interest cost |
|
|
286 |
|
|
|
221 |
|
Amortization of experience gain |
|
|
(24 |
) |
|
|
(18 |
) |
Foreign exchange |
|
|
217 |
|
|
|
527 |
|
|
|
|
|
|
|
|
|
|
$ |
4,019 |
|
|
$ |
3,806 |
|
|
|
|
|
|
|
|
The unamortized experience gain is being amortized on a straight-line basis over the average life
expectancy of the retiree group of 10.7 years as per the December 1, 2008 actuarial valuation.
| 11. |
|
RECLAMATION AND REMEDIATION OBLIGATIONS |
| |
|
Reclamation and remediation obligations consist of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Reclamation and remediation liability — by location: |
|
|
|
|
|
|
|
|
U.S. Mill and Mines |
|
$ |
6,383 |
|
|
$ |
8,609 |
|
Elliot Lake |
|
|
9,451 |
|
|
|
8,155 |
|
McClean Lake and Midwest Joint Ventures |
|
|
1,731 |
|
|
|
1,142 |
|
|
|
|
|
|
|
|
|
|
$ |
17,565 |
|
|
$ |
17,906 |
|
|
|
|
|
|
|
|
Reclamation and remediation liability — by duration: |
|
|
|
|
|
|
|
|
Current |
|
$ |
641 |
|
|
$ |
752 |
|
Non-current |
|
|
16,924 |
|
|
|
17,154 |
|
|
|
|
|
|
|
|
|
|
$ |
17,565 |
|
|
$ |
17,906 |
|
|
|
|
|
|
|
|
Reclamation and remediation liability — continuity summary: |
|
|
|
|
|
|
|
|
Opening |
|
$ |
17,906 |
|
|
$ |
19,346 |
|
Accretion |
|
|
1,309 |
|
|
|
1,482 |
|
Expenditures incurred |
|
|
(1,249 |
) |
|
|
(1,051 |
) |
Liability adjustments — income statement |
|
|
(1,391 |
) |
|
|
(3,478 |
) |
Liability adjustments — balance sheet |
|
|
448 |
|
|
|
350 |
|
Foreign exchange |
|
|
542 |
|
|
|
1,257 |
|
|
|
|
|
|
|
|
|
|
$ |
17,565 |
|
|
$ |
17,906 |
|
|
|
|
|
|
|
|
Site Restoration: U.S. Mill and Mines
The decommissioning and reclamation of the White Mesa mill and U.S. mines are subject to
legal and regulatory requirements. Estimates of the costs of reclamation are reviewed periodically
by the applicable regulatory authorities. The current estimates for the White Mesa mill and U.S.
mines are $4,091,000 (2009: $6,054,000) and $2,292,000 (2009: $2,555,000), respectively. The above
accrual represents the Company’s best estimate of the present value of future reclamation costs,
discounted at rates ranging from 6.19% to 7.17% (2009: 6.75% to 7.50%). The undiscounted amount of
estimated future reclamation costs is $34,972,000 (2009: $28,033,000). Reclamation costs are
expected to be incurred between 2012 and 2040.
46 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
Site Restoration: Elliot Lake |
| |
|
The Elliot Lake uranium mine was closed in 1992 and capital works to decommission this
site were completed in 1997. The remaining provision is for the estimated cost of monitoring
the Tailings Management Areas at the Company and Stanrock sites and for treatment of water
discharged from these areas. The Company conducts its activities at both sites pursuant to
decommissioning licenses issued by the Canadian Nuclear Safety Commission. The above accrual
represents the Company’s best estimate of the present value of the total future reclamation
cost based on assumptions as to levels of treatment, which will be required in the future,
discounted at 6.48% (2009: 7.0%). The undiscounted amount of estimated future reclamation costs
is $51,080,000 (CDN$50,806,000) (2009: $46,964,000 (CDN$49,358,000)). |
| |
|
Spending on restoration activities at the Elliot Lake site is funded from monies in the Elliot
Lake Reclamation Trust fund (see note 6). |
| |
|
Site Restoration: McClean Lake Joint Venture and Midwest Joint Venture |
| |
|
The McClean Lake and Midwest operations are subject to environmental regulations as set
out by the Saskatchewan government and the Canadian Nuclear Safety Commission. Cost estimates
of the estimated future decommissioning and reclamation activities are prepared periodically
and filed with the applicable regulatory authorities for approval. The above accrual represents
the Company’s best estimate of the present value of the future reclamation cost contemplated in
these cost estimates discounted at 6.48% (2009: 7.0%). The undiscounted amount of estimated
future reclamation costs is $19,705,000 (CDN$19,599,000) (2009: $20,421,000 (CDN$21,461,000)).
Reclamation costs are expected to be incurred between 2025 and 2052. |
| |
|
Under the Mineral Industry Environmental Protection Regulations (1996), the Company is required
to provide its pro-rata share of financial assurances to the Province. The Company has provided
irrevocable standby letters of credit, from a chartered bank, in favour of Saskatchewan
Environment, totalling CDN$9,698,000. |
| |
|
Debt obligations consist of: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Notes payable and other financing |
|
$ |
405 |
|
|
$ |
1,064 |
|
|
|
|
|
|
|
|
|
|
$ |
405 |
|
|
$ |
1,064 |
|
|
|
|
|
|
|
|
Debt obligations — by duration: |
|
|
|
|
|
|
|
|
Current |
|
|
200 |
|
|
|
869 |
|
Non-current |
|
|
205 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
$ |
405 |
|
|
$ |
1,064 |
|
|
|
|
|
|
|
|
Revolving Line of Credit
The Company has in place a $60,000,000 revolving term credit facility (the “facility”) with
the Bank of Nova Scotia. The maturity date of the facility is June 30, 2011.
The facility contains three financial covenants: one based on maintaining a certain level of
tangible net worth, a second requiring a minimum current ratio to be maintained and the other
requiring the Company to reduce borrowings under the facility to $35,000,000 for a period of time
each quarter before drawing further amounts.
The borrower under the facility is DMI and DMC has provided an unlimited full recourse guarantee
and a pledge of all of the shares of DMI. DMI has provided a first-priority security interest in
all present and future personal property and an assignment of its rights and interests under all
material agreements relative to the McClean Lake and Midwest projects. In addition, each of DMC’s
material U.S. subsidiaries has provided an unlimited full recourse guarantee secured by a pledge of
all of its shares and a first-priority security interest in all of its present and future personal
property.
Interest payable under the facility is bankers acceptance or LIBOR rate plus a margin or prime rate
plus a margin. The facility is subject to standby fees. During 2010, the Company has not incurred
any interest under the facility. In 2009, the Company incurred $1,423,000 of interest under the
facility. The weighted average interest rate paid by the Company during 2009 was 2.70%.
As at December 31, 2010, the Company has no outstanding borrowings under the facility
(December 31, 2009 — $nil). At December 31, 2010, approximately $19,816,000 of the facility is
being utilized as collateral for certain letters of credit and is not available to draw upon
(December 31, 2009 — $9,228,000).
The Company has deferred $1,257,000 (CDN$1,250,000) of incremental costs associated with the set-up
and subsequent amendment of the facility. These costs are being amortized over the three year term
of the facility. The unamortized portion of the asset is included in prepaid expenses and other on
the consolidated balance sheets.
Denison Mines Corp. Annual Report 2010 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
Scheduled Debt Obligation Maturities |
| |
|
The table below represents currently scheduled maturities of debt obligations over the
next 4 years when it will be paid in full: |
| |
|
|
|
|
| (in thousands) |
|
|
|
|
2011 |
|
$ |
200 |
|
2012 |
|
|
111 |
|
2013 |
|
|
78 |
|
2014 |
|
|
16 |
|
| 13. |
|
OTHER LONG-TERM LIABILITIES |
| |
|
Other long-term liabilities consist of: |
| |
|
|
|
|
|
|
|
|
| |
|
At December 31, |
|
|
At December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Unamortized fair value of sales contracts |
|
$ |
— |
|
|
$ |
313 |
|
Unamortized fair value of toll milling contracts |
|
|
1,005 |
|
|
|
951 |
|
Other |
|
|
100 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
$ |
1,105 |
|
|
$ |
1,364 |
|
|
|
|
|
|
|
|
Other long-term liabilities — by duration: |
|
|
|
|
|
|
|
|
Current |
|
|
— |
|
|
|
313 |
|
Non-current |
|
|
1,105 |
|
|
|
1,051 |
|
|
|
|
|
|
|
|
|
|
$ |
1,105 |
|
|
$ |
1,364 |
|
|
|
|
|
|
|
|
| |
|
Unamortized fair values of sales contracts are amortized to revenue as deliveries under the
applicable contracts are made. |
| |
|
The Company operates in multiple industries and jurisdictions, and the related income is
subject to varying rates of taxation. A reconciliation of the combined Canadian federal and
provincial income tax rate to the Company’s effective rate of income tax is as follows: |
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Combined basic tax rate |
|
|
31.0 |
% |
|
|
33.0 |
% |
Loss before taxes |
|
$ |
(14,411 |
) |
|
$ |
(185,546 |
) |
|
|
|
|
|
|
|
Income tax expense (recovery) at basic tax rate |
|
|
(4,467 |
) |
|
|
(61,230 |
) |
Non-deductible amounts |
|
|
3,833 |
|
|
|
12,569 |
|
Non-taxable amounts |
|
|
(2,730 |
) |
|
|
(3,936 |
) |
Previously unrecognized future tax assets |
|
|
(359 |
) |
|
|
(2,579 |
) |
Difference in foreign tax rates |
|
|
2,600 |
|
|
|
3,874 |
|
Change in valuation allowance |
|
|
26 |
|
|
|
15,557 |
|
Impact of legislative changes |
|
|
— |
|
|
|
(2,292 |
) |
Other |
|
|
921 |
|
|
|
(497 |
) |
|
|
|
|
|
|
|
Tax recovery per consolidated financial statements |
|
$ |
(176 |
) |
|
$ |
(38,534 |
) |
|
|
|
|
|
|
|
48 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
The tax effects of temporary differences resulting in future income tax assets and future
income tax liabilities are presented below: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Future income tax assets: |
|
|
|
|
|
|
|
|
Inventory |
|
$ |
— |
|
|
$ |
2,500 |
|
Property, plant and equipment, net |
|
|
8,646 |
|
|
|
9,277 |
|
Investments |
|
|
— |
|
|
|
772 |
|
Deferred revenue |
|
|
1,378 |
|
|
|
1,302 |
|
Post-employment benefits |
|
|
1,081 |
|
|
|
1,015 |
|
Reclamation and remediation obligations |
|
|
5,643 |
|
|
|
5,994 |
|
Other long-term liabilities |
|
|
270 |
|
|
|
367 |
|
Tax loss carryforwards |
|
|
58,367 |
|
|
|
41,687 |
|
Other |
|
|
9,602 |
|
|
|
9,079 |
|
|
|
|
|
|
|
|
|
|
|
84,987 |
|
|
|
71,993 |
|
|
|
|
|
|
|
|
|
|
Future income tax liability: |
|
|
|
|
|
|
|
|
Inventory |
|
|
(3,089 |
) |
|
|
(918 |
) |
Long-term investments |
|
|
(188 |
) |
|
|
(143 |
) |
Property, plant and equipment, net |
|
|
(146,928 |
) |
|
|
(132,939 |
) |
Intangibles |
|
|
(1,021 |
) |
|
|
(1,182 |
) |
Other |
|
|
(1,877 |
) |
|
|
(1,688 |
) |
|
|
|
|
|
|
|
Future tax liabilities — net |
|
|
(68,116 |
) |
|
|
(64,877 |
) |
Valuation allowance |
|
|
(38,067 |
) |
|
|
(38,041 |
) |
|
|
|
|
|
|
|
Net future income tax liabilities |
|
$ |
(106,183 |
) |
|
$ |
(102,918 |
) |
|
|
|
|
|
|
|
Management believes that sufficient uncertainty exists regarding the realization of certain future
income tax assets and liabilities that a valuation allowance is required.
At December 31, 2010, the Company had the following non-capital loss carry-forwards available for
tax purposes:
| |
|
|
|
|
|
|
|
|
| |
|
Amount |
|
|
|
|
| Country |
|
(in thousands) |
|
|
Expiry |
|
Australia |
|
$ |
485 |
|
|
Unlimited |
Canada |
|
|
39,679 |
|
|
|
2028–2030 |
|
Mongolia |
|
|
504 |
|
|
|
2011–2018 |
|
United States |
|
|
112,282 |
|
|
|
2026–2030 |
|
Zambia |
|
|
5,813 |
|
|
|
2011–2020 |
|
The tax benefit of the above Australian, Canadian, Mongolian, United States and Zambian
non-capital loss carry-forwards has not been recognized in the financial statements.
Denison Mines Corp. Annual Report 2010 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
Denison is authorized to issue an unlimited number of common shares without par value. A
continuity summary of the issued and outstanding common shares and the associated dollar
amounts is presented below: |
| |
|
|
|
|
|
|
|
|
| |
|
Number of |
|
|
|
|
| |
|
Common |
|
|
|
|
| (in thousands except share amounts) |
|
Shares |
|
|
Amount |
|
Balance at December 31, 2008 |
|
|
197,295,415 |
|
|
$ |
666,278 |
|
|
|
|
|
|
|
|
Issued for cash: |
|
|
|
|
|
|
|
|
New issue gross proceeds |
|
|
142,425,000 |
|
|
|
193,646 |
|
New issue gross issue costs |
|
|
— |
|
|
|
(8,612 |
) |
Renunciation of flow-through share liability |
|
|
— |
|
|
|
(1,824 |
) |
|
|
|
|
|
|
|
|
|
|
142,425,000 |
|
|
|
183,210 |
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
339,720,415 |
|
|
$ |
849,488 |
|
|
|
|
|
|
|
|
Issued for cash: |
|
|
|
|
|
|
|
|
New issue gross proceeds |
|
|
26,400,000 |
|
|
|
64,769 |
|
New issue gross issue costs |
|
|
— |
|
|
|
(3,678 |
) |
Exercise of stock options |
|
|
80,250 |
|
|
|
159 |
|
Renunciation of flow-through share liability |
|
|
— |
|
|
|
(349 |
) |
Fair value of stock options exercised |
|
|
— |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
26,480,250 |
|
|
|
60,996 |
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
366,200,665 |
|
|
$ |
910,484 |
|
|
|
|
|
|
|
|
New Issues
In December 2010, the Company completed a private placement of 25,000,000 special warrants at
a price of CDN$2.45 per special warrant for gross proceeds of $60,613,000 (CDN$61,250,000). Each
special warrant entitled the holder to receive one common share of the Company within three days
after the issuance of a final prospectus receipt by the applicable securities regulatory
authorities. The final prospectus receipt was received by the Company on December 20, 2010 and,
accordingly, all special warrants were converted into common shares.
In December 2010, the Company completed a private placement of 1,400,000 flow-through special
warrants at a price of CDN$3.00 per flow-through special warrant for gross proceeds of $4,156,000
(CDN$4,200,000). Each flow-through special warrant entitled the holder to receive one flow-through
common share of the Company within three days after the issuance of a final prospectus receipt by
the applicable securities regulatory authorities. The final prospectus receipt was received by the
Company on December 20, 2010 and, accordingly, all flow-through special warrants were converted
into flow-through common shares.
In June 2009, the Company completed an equity financing of 73,000,000 common shares at a price of
CDN$1.30 per share for gross proceeds of $82,522,000 (CDN$94,900,000). Of the 73,000,000 shares
issued, 58,000,000 were issued to a subsidiary of Korea Electric Power Corporation (“KEPCO”) and
15,000,000 shares were issued to entities affiliated with Lukas Lundin, a director of the Company.
In June 2009, the Company completed a bought deal financing of 40,000,000 common shares at a price
of CDN$2.05 per share for gross proceeds of $71,144,000 (CDN$82,000,000).
In June 2009, the Company completed a private placement of 675,000 flow-through common shares at a
price of CDN$2.18 per share for gross proceeds of $1,297,000 (CDN$1,471,500). The shares were
issued to a former director of the Company.
In January 2009, the Company issued 28,750,000 common shares at a price of CDN$1.65 per share for
gross proceeds of $38,683,000 (CDN$47,437,500).
Flow-Through Share Issues
The Company finances a portion of its exploration programs through the use of flow-through
share issuances. Income tax deductions relating to these expenditures are claimable by the
investors and not by the Company.
As at December 31, 2010, the Company estimates that it has spent CDN$50,000 of its CDN$4,200,000
December 2010 flow-through share obligation. The Company renounced the income tax benefits of this
issue to its subscribers in February 2011.
As at December 31, 2010, the Company has fully met its CDN$1,471,500 June 2009 flow-through share
obligation. The Company renounced the income tax benefits of the issue to its subscriber in
February 2010.
50 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 16. |
|
SHARE PURCHASE WARRANTS |
| |
|
A continuity summary of the issued and outstanding share purchase warrants in terms of
common shares of the Company and associated dollar amount is presented below: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Weighted Average |
|
|
Number of |
|
|
Fair |
|
| |
|
Exercise Price |
|
|
Common Shares |
|
|
Value |
|
| (in thousands except share amounts and price per share) |
|
Per Share (CDN$) |
|
|
Issuable |
|
|
Amount |
|
Balance outstanding at December 31, 2008 |
|
|
8.70 |
|
|
|
9,564,915 |
|
|
$ |
11,728 |
|
|
|
|
|
|
|
|
|
|
|
Warrants expired (2) |
|
|
5.21 |
|
|
|
(3,156,915 |
) |
|
|
(5,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
5.21 |
|
|
|
(3,156,915 |
) |
|
|
(5,898 |
) |
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2009 |
|
|
10.42 |
|
|
|
6,408,000 |
|
|
$ |
5,830 |
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2010 |
|
|
10.42 |
|
|
|
6,408,000 |
|
|
$ |
5,830 |
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable at December 31, 2010 |
|
|
10.42 |
|
|
|
6,408,000 |
|
|
$ |
5,830 |
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding — by warrant series March 2006 series (1) |
|
|
10.42 |
|
|
|
6,408,000 |
|
|
|
5,830 |
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2010 |
|
|
10.42 |
|
|
|
6,408,000 |
|
|
$ |
5,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
The March 2006 series had an effective exercise price of CDN$10.42 per
issuable share (CDN$30.00 per warrant adjusted for the 2.88 exchange ratio associated with the
Denison and IUC merger) and expired on March 1, 2011. Upon expiry, 6,408,000 (or 2,225,000
before adjusting for the exchange ratio) of the warrants expired unexercised. |
| |
| (2) |
|
The November 2004 series had an effective exercise price of CDN$5.21 per
issuable share (CDN$15.00 per warrant adjusted for the 2.88 exchange ratio associated with the
Denison and IUC merger) and expired on November 24, 2009. Upon expiry in 2009, 3,156,915 (or
1,096,141 before adjusting for the exchange ratio) of the warrants expired unexercised. |
| |
|
A continuity summary of contributed surplus is presented below: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Balance, beginning of year |
|
$ |
39,922 |
|
|
$ |
30,537 |
|
Stock-based compensation expense (note 18) |
|
|
1,831 |
|
|
|
3,847 |
|
Fair value of stock options exercised |
|
|
(95 |
) |
|
|
— |
|
Warrant expiries |
|
|
— |
|
|
|
5,898 |
|
Warrant expiries-tax |
|
|
— |
|
|
|
(360 |
) |
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
41,658 |
|
|
$ |
39,922 |
|
|
|
|
|
|
|
|
| |
|
The Company’s stock-based compensation plan (the “Plan”) provides for the granting of
stock options up to 10% of the issued and outstanding common shares at the time of grant,
subject to a maximum of 20,000,000 common shares. As at December 31, 2010, an aggregate of
12,044,525 options have been granted (less cancellations) since the Plan’s inception in 1997. |
| |
|
Under the Plan, all stock options are granted at the discretion of the Company’s board of
directors, including any vesting provisions if applicable. The term of any stock option granted
may not exceed ten years and the exercise price may not be lower than the closing price of the
Company’s shares on the last trading day immediately preceding the date of grant. In general,
the term of stock options granted under the Plan ranges from three to five years and vesting
occurs over a three year period. |
Denison Mines Corp. Annual Report 2010 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
A continuity summary of the stock options of the Company granted under the Plan is
presented below: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2010 |
|
|
2009 |
|
| |
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
| |
|
Number of |
|
|
Exercise Price |
|
|
Number of |
|
|
Exercise Price |
|
| |
|
Common |
|
|
per Share |
|
|
Common |
|
|
per Share |
|
| |
|
Shares |
|
|
(CDN $) |
|
|
Shares |
|
|
(CDN $) |
|
Stock options outstanding, beginning of year |
|
|
8,084,990 |
|
|
$ |
2.97 |
|
|
|
5,536,384 |
|
|
$ |
7.11 |
|
Granted |
|
|
407,000 |
|
|
|
1.43 |
|
|
|
5,491,500 |
|
|
|
2.08 |
|
Exercised |
|
|
(80,250 |
) |
|
|
2.03 |
|
|
|
— |
|
|
|
— |
|
Expired |
|
|
(2,125,651 |
) |
|
|
3.78 |
|
|
|
(2,942,894 |
) |
|
|
9.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding, end of year |
|
|
6,286,089 |
|
|
$ |
2.61 |
|
|
|
8,084,990 |
|
|
$ |
2.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable, end of year |
|
|
4,299,671 |
|
|
$ |
2.85 |
|
|
|
4,962,689 |
|
|
$ |
3.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of stock options outstanding of the Company at December 31, 2010 is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
| |
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
Remaining |
|
|
|
|
|
|
Exercise |
|
| |
|
Contractual |
|
|
Number of |
|
|
Price per |
|
| |
|
Life |
|
|
Common |
|
|
Share |
|
| Range of Exercise Prices per Share (CDN $) |
|
(Years) |
|
|
Shares |
|
|
(CDN $) |
|
Stock options outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
$1.37 to $4.99 |
|
|
3.47 |
|
|
|
5,288,825 |
|
|
$ |
2.03 |
|
$5.00 to $9.99 |
|
|
3.98 |
|
|
|
996,439 |
|
|
|
5.72 |
|
$10.00 to $11.84 |
|
|
0.12 |
|
|
|
825 |
|
|
|
11.84 |
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding, end of year |
|
|
3.55 |
|
|
|
6,286,089 |
|
|
$ |
2.61 |
|
|
|
|
|
|
|
|
|
|
|
A summary of stock options outstanding of the Company at December 31, 2009 is presented
below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
| |
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
Remaining |
|
|
|
|
|
|
Exercise |
|
| |
|
Contractual |
|
|
Number of |
|
|
Price per |
|
| |
|
Life |
|
|
Common |
|
|
Share |
|
| Range of Exercise Prices per Share (CDN $) |
|
(Years) |
|
|
Shares |
|
|
(CDN $) |
|
Stock options outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
$1.37 to $4.99 |
|
|
4.38 |
|
|
|
6,609,675 |
|
|
$ |
2.07 |
|
$5.00 to $9.99 |
|
|
4.93 |
|
|
|
1,107,639 |
|
|
|
5.71 |
|
$10.00 to $15.30 |
|
|
0.57 |
|
|
|
367,676 |
|
|
|
10.97 |
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding, end of year |
|
|
4.28 |
|
|
|
8,084,990 |
|
|
$ |
2.97 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2010 expire between January 2011 and October 2016.
52 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
The fair value of each option granted is estimated on the date of grant using the
Black-Scholes option pricing model. The following table outlines the range of assumptions used
in the model for the year: |
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Risk-free interest rate |
|
|
2.48% – 2.49 |
% |
|
|
1.78% – 2.40 |
% |
Expected stock price volatility |
|
|
87.4% – 90.1 |
% |
|
|
83.4% – 89.6 |
% |
Expected life |
|
3.7 – 3.8 years |
|
3.5 years |
Expected forfeitures |
|
|
5.4 |
% |
|
|
— |
|
Expected dividend yield |
|
|
— |
|
|
|
— |
|
Fair value per share under options granted |
|
CDN$0.88 – CDN$0.90 |
|
CDN$0.89 – CDN $1.36 |
Stock-based compensation would be allocated as follows in the consolidated statement of operations:
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Operating expenses |
|
$ |
595 |
|
|
$ |
612 |
|
Mineral property exploration |
|
|
174 |
|
|
|
148 |
|
General and administrative |
|
|
1,062 |
|
|
|
3,087 |
|
|
|
|
|
|
|
|
|
|
$ |
1,831 |
|
|
$ |
3,847 |
|
|
|
|
|
|
|
|
The fair values of stock options with vesting provisions are amortized on a straight-line basis as
stock-based compensation expense over the applicable vesting periods. At December 31, 2010, the
Company had an additional $1,765,000 in stock-based compensation expense to be recognized
periodically to November 2012.
| 19. |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
| |
|
A continuity summary of accumulated other comprehensive income (loss) is as follows: |
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Cumulative foreign currency translation gain (loss) |
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
71,898 |
|
|
$ |
(4,925 |
) |
Change in foreign currency translation |
|
|
31,870 |
|
|
|
76,823 |
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
103,768 |
|
|
|
71,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on investments |
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
3,584 |
|
|
|
216 |
|
Net increase (decrease) in unrealized gains, net of tax (1) |
|
|
(2,490 |
) |
|
|
3,368 |
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
1,094 |
|
|
|
3,584 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), end of year |
|
$ |
104,862 |
|
|
$ |
75,482 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Unrealized gains (losses) on investments deemed available-for-sale are included
in other comprehensive income (loss) until realized. When the investment is disposed of or incurs a
decline in value that is other than temporary, the gain (loss) is realized and reclassified to the
income statement. During 2010, approximately $3,333,000 of gains from asset disposals and $181,000
of other than temporary losses were realized and reclassified to the consolidated statements of
operations within other income (expense). During 2009, approximately $5,532,000 of gains from asset
disposals and $149,000 of other than temporary losses were realized and reclassified to the
consolidated statements of operations within other income (expense). |
Denison Mines Corp. Annual Report 2010 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 20. |
|
SUPPLEMENTAL FINANCIAL INFORMATION |
| |
|
The elements of operating expenses in the consolidated statements of operations is as
follows: |
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
COGS — mineral concentrates |
|
$ |
111,161 |
|
|
$ |
76,771 |
|
COGS — mineral concentrates — NRV adjustments |
|
|
(21,315 |
) |
|
|
(8,071 |
) |
Mining and development |
|
|
31,381 |
|
|
|
50,848 |
|
Less: absorption to stockpiles, mineral properties |
|
|
(30,202 |
) |
|
|
(48,200 |
) |
Mineral property amortization and stockpile depletion |
|
|
47,202 |
|
|
|
38,738 |
|
Milling and conversion |
|
|
50,190 |
|
|
|
46,364 |
|
Less: absorption to concentrates |
|
|
(91,399 |
) |
|
|
(82,450 |
) |
Reclamation — accretion / adjustments |
|
|
91 |
|
|
|
(1,938 |
) |
Post-employment — accretion / adjustments |
|
|
262 |
|
|
|
203 |
|
Selling expenses |
|
|
1,592 |
|
|
|
1,357 |
|
Cost of services |
|
|
14,926 |
|
|
|
12,161 |
|
Inventory — non-cash adjustments |
|
|
8,660 |
|
|
|
12,362 |
|
|
|
|
|
|
|
|
Operating expenses |
|
$ |
122,549 |
|
|
$ |
98,145 |
|
|
|
|
|
|
|
|
The elements of other income (expense) in the consolidated statements of operations is as follows:
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Interest income |
|
$ |
680 |
|
|
$ |
785 |
|
Interest expense |
|
|
(27 |
) |
|
|
(1,438 |
) |
Gains (losses) on: |
|
|
|
|
|
|
|
|
Foreign exchange |
|
|
(8,003 |
) |
|
|
(17,476 |
) |
Land, plant and equipment disposals |
|
|
(594 |
) |
|
|
147 |
|
Investment disposals |
|
|
3,333 |
|
|
|
5,532 |
|
Investment other than temporary losses |
|
|
(181 |
) |
|
|
(149 |
) |
Restricted cash and investments — fair value change |
|
|
207 |
|
|
|
(809 |
) |
Contract settlement fee income (1) |
|
|
11,000 |
|
|
|
— |
|
Other |
|
|
(603 |
) |
|
|
(1,143 |
) |
|
|
|
|
|
|
|
Other income (expense) |
|
$ |
5,812 |
|
|
$ |
(14,551 |
) |
|
|
|
|
|
|
|
|
|
|
| (1) |
|
In June 2010, the Company agreed to terminate one of its sales contracts in
exchange for a termination fee of $11,000,000 payable in two installments —$6,000,000 in June 2010
and $5,000,000 in March 2011. The June 2010 installment has been received and the $5,000,000 March
2011 installment has been included in the Company’s trade and other receivable as a sundry
receivable (see note 3). |
The net change in non-cash working capital items in the consolidated statements of cash flows
is as follows:
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Net change in non-cash working capital items: |
|
|
|
|
|
|
|
|
Trade and other receivables |
|
$ |
(5,176 |
) |
|
$ |
344 |
|
Inventories |
|
|
(1,877 |
) |
|
|
(22,229 |
) |
Prepaid expenses and other assets |
|
|
(283 |
) |
|
|
(284 |
) |
Accounts payable and accrued liabilities |
|
|
4,004 |
|
|
|
(15,071 |
) |
Reclamation and remediation obligations |
|
|
(1,249 |
) |
|
|
(1,051 |
) |
Deferred revenue |
|
|
152 |
|
|
|
274 |
|
Post-employment benefits |
|
|
(266 |
) |
|
|
(281 |
) |
|
|
|
|
|
|
|
Net change in non-cash working capital items |
|
$ |
(4,695 |
) |
|
$ |
(38,298 |
) |
|
|
|
|
|
|
|
54 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 21. |
|
SEGMENTED INFORMATION |
| |
|
The Company operates in two primary segments — the mining segment and the services and
other segment. The mining segment, which has been further subdivided by major geographic
regions, includes activities related to exploration, evaluation and development, mining,
milling (including toll milling) and the sale of mineral concentrates. The services and other
segment includes the results of the Company’s environmental services business, management fees
and commission income earned from UPC and general corporate expenses not allocated to the other
segments. |
| |
|
For 2010, business segment results were as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Canada |
|
|
U.S.A. |
|
|
Africa |
|
|
Asia |
|
|
Services |
|
|
|
|
| (in thousands) |
|
Mining |
|
|
Mining |
|
|
Mining |
|
|
Mining |
|
|
and Other |
|
|
Total |
|
Statement of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
32,820 |
|
|
|
77,432 |
|
|
|
— |
|
|
|
— |
|
|
|
18,068 |
|
|
|
128,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
37,335 |
|
|
|
70,289 |
|
|
|
— |
|
|
|
— |
|
|
|
14,925 |
|
|
|
122,549 |
|
Sales royalties and capital taxes |
|
|
2,251 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74 |
|
|
|
2,325 |
|
Mineral property exploration |
|
|
5,946 |
|
|
|
566 |
|
|
|
44 |
|
|
|
970 |
|
|
|
— |
|
|
|
7,526 |
|
General and administrative |
|
|
— |
|
|
|
4,832 |
|
|
|
1,071 |
|
|
|
1,035 |
|
|
|
7,374 |
|
|
|
14,312 |
|
Stock option expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,831 |
|
|
|
1,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,532 |
|
|
|
75,687 |
|
|
|
1,115 |
|
|
|
2,005 |
|
|
|
24,204 |
|
|
|
148,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(12,712 |
) |
|
|
1,745 |
|
|
|
(1,115 |
) |
|
|
(2,005 |
) |
|
|
(6,136 |
) |
|
|
(20,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues — supplemental: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uranium concentrates |
|
|
32,820 |
|
|
|
55,158 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
87,978 |
|
Vanadium related concentrates |
|
|
— |
|
|
|
16,934 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,934 |
|
Environmental services |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,492 |
|
|
|
15,492 |
|
Management fees and commissions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,576 |
|
|
|
2,576 |
|
Alternate feed processing and other |
|
|
— |
|
|
|
5,340 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,820 |
|
|
|
77,432 |
|
|
|
— |
|
|
|
— |
|
|
|
18,068 |
|
|
|
128,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
101,781 |
|
|
|
96,500 |
|
|
|
973 |
|
|
|
533 |
|
|
|
4,112 |
|
|
|
203,899 |
|
Accumulated depreciation |
|
|
(5,543 |
) |
|
|
(30,155 |
) |
|
|
(559 |
) |
|
|
(381 |
) |
|
|
(2,000 |
) |
|
|
(38,638 |
) |
Mineral properties, net |
|
|
332,217 |
|
|
|
80,775 |
|
|
|
127,624 |
|
|
|
8,581 |
|
|
|
— |
|
|
|
549,197 |
|
Intangibles |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,794 |
|
|
|
3,794 |
|
Goodwill |
|
|
53,919 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482,374 |
|
|
|
147,120 |
|
|
|
128,038 |
|
|
|
8,733 |
|
|
|
5,906 |
|
|
|
772,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
965 |
|
|
|
26,929 |
|
|
|
1,353 |
|
|
|
550 |
|
|
|
1,112 |
|
|
|
30,909 |
|
Denison Mines Corp. Annual Report 2010 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
For 2009, business segment results were as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Canada |
|
|
U.S.A. |
|
|
Africa |
|
|
Asia |
|
|
Services |
|
|
|
|
| (in thousands) |
|
Mining |
|
|
Mining |
|
|
Mining |
|
|
Mining |
|
|
and Other |
|
|
Total |
|
Statement of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
26,211 |
|
|
|
38,211 |
|
|
|
— |
|
|
|
— |
|
|
|
14,748 |
|
|
|
79,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
32,024 |
|
|
|
53,908 |
|
|
|
— |
|
|
|
— |
|
|
|
12,213 |
|
|
|
98,145 |
|
Sales royalties and capital taxes |
|
|
1,688 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13 |
) |
|
|
1,675 |
|
Mineral property exploration |
|
|
7,726 |
|
|
|
252 |
|
|
|
2,054 |
|
|
|
88 |
|
|
|
— |
|
|
|
10,120 |
|
General and administrative |
|
|
16 |
|
|
|
3,968 |
|
|
|
1,384 |
|
|
|
1,073 |
|
|
|
7,442 |
|
|
|
13,883 |
|
Stock option expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,847 |
|
|
|
3,847 |
|
Mineral property impairment |
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
Intangibles impairment |
|
|
— |
|
|
|
359 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
359 |
|
Goodwill impairment |
|
|
22,136 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,590 |
|
|
|
58,487 |
|
|
|
103,438 |
|
|
|
1,161 |
|
|
|
23,489 |
|
|
|
250,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(37,379 |
) |
|
|
(20,276 |
) |
|
|
(103,438 |
) |
|
|
(1,161 |
) |
|
|
(8,741 |
) |
|
|
(170,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues — supplemental: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uranium concentrates |
|
|
26,211 |
|
|
|
33,678 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
59,889 |
|
Vanadium related concentrates |
|
|
— |
|
|
|
4,480 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,480 |
|
Environmental services |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,226 |
|
|
|
12,226 |
|
Management fees and commissions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,522 |
|
|
|
2,522 |
|
Alternate feed processing and other |
|
|
— |
|
|
|
53 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,211 |
|
|
|
38,211 |
|
|
|
— |
|
|
|
— |
|
|
|
14,748 |
|
|
|
79,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
98,248 |
|
|
|
81,991 |
|
|
|
940 |
|
|
|
523 |
|
|
|
2,834 |
|
|
|
184,536 |
|
Accumulated depreciation |
|
|
(5,481 |
) |
|
|
(20,278 |
) |
|
|
(372 |
) |
|
|
(287 |
) |
|
|
(1,497 |
) |
|
|
(27,915 |
) |
Mineral properties, net |
|
|
321,306 |
|
|
|
78,765 |
|
|
|
126,306 |
|
|
|
8,041 |
|
|
|
— |
|
|
|
534,418 |
|
Intangibles |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,436 |
|
|
|
4,436 |
|
Goodwill |
|
|
51,028 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465,101 |
|
|
|
140,478 |
|
|
|
126,874 |
|
|
|
8,277 |
|
|
|
5,773 |
|
|
|
746,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
4,674 |
|
|
|
34,933 |
|
|
|
2,975 |
|
|
|
1,410 |
|
|
|
262 |
|
|
|
44,254 |
|
Revenue Concentration
The Company’s business is such that, at any given time, it sells its uranium and vanadium
concentrates to and enters into process milling arrangements and other services with a relatively
small number of customers. During 2010, three customers in the mining segment accounted for
approximately 35% of total revenues. During 2009, two customers in the mining segment accounted for
approximately 51% of total revenues.
56 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 22. |
|
RELATED PARTY TRANSACTIONS |
| |
|
Uranium Participation Corporation |
| |
|
The Company is a party to a management services agreement with UPC. Under the terms of
the agreement, the Company will receive the following fees from UPC: a) a commission of 1.5% of
the gross value of any purchases or sales of uranium completed at the request of the Board of
Directors of UPC; b) a minimum annual management fee of CDN$400,000 (plus reasonable
out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon UPC’s net asset
value between CDN$100,000,000 and CDN$200,000,000 and 0.2% per annum based upon UPC’s net asset
value in excess of CDN$200,000,000; c) a fee of CDN$200,000 upon the completion of each equity
financing where proceeds to UPC exceed CDN$20,000,000; d) a fee of CDN$200,000 for each
transaction or arrangement (other than the purchase or sale of uranium) of business where the
gross value of such transaction exceeds CDN$20,000,000 (“an initiative”); e) an annual fee up
to a maximum of CDN$200,000, at the discretion of the Board of Directors of UPC, for on-going
maintenance or work associated with an initiative; and f) a fee equal to 1.5% of the gross
value of any uranium held by UPC prior to the completion of any acquisition of at least 90% of
the common shares of UPC. |
| |
|
In accordance with the management services agreement, all uranium investments owned by UPC are
held in accounts with conversion facilities in the name of DMI as manager for and on behalf of
UPC. |
| |
|
From time to time, the Company has also provided temporary revolving credit facilities to UPC
which generate interest and standby fee income and sold uranium concentrates to UPC. |
| |
|
The following transactions were incurred with UPC for the periods noted: |
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Revenue |
|
|
|
|
|
|
|
|
Management fees (including expenses) |
|
$ |
1,614 |
|
|
$ |
1,541 |
|
Commission and transaction fees |
|
|
962 |
|
|
|
981 |
|
|
|
|
|
|
|
|
|
|
$ |
2,576 |
|
|
$ |
2,522 |
|
|
|
|
|
|
|
|
At December 31, 2010, accounts receivable includes $281,000 (2009: $117,000) due from UPC with
respect to the fees and transactions indicated above.
On November 18, 2010, the Company entered into a uranium concentrate loan agreement with UPC which
entitles the Company to borrow 150,000 pounds of U3O8 from UPC. The U3O8 loan
is subject to a loan fee and requires collateral in the form of an irrevocable standby-letter
of credit. The amounts loaned were to be repaid by February 3, 2011 or a later date agreed to
by both parties. On December 24, 2010, the Company issued a letter of credit in favour of UPC in
the amount of $10,065,000 as collateral for the U3O8 loan. On
January 3, 2011, the
Company borrowed 150,000 pounds of U3O8 from UPC. On February
3, 2011, the repayment date for the U3O8 loan was amended to April 4,
2011 and the letter of credit in favour of UPC was increased to $12,045,000.
Korea Electric Power Corporation (“KEPCO”)
In June 2009, Denison completed definitive agreements with KEPCO. The agreements included a
long-term offtake agreement which
provides for the delivery to KEPCO of 20% of Denison’s annual U3O8 production (±10%) but not less than 350,000 pounds (±10%) per year
from 2010 to 2015 inclusive. KEPCO also purchased 58,000,000 common shares of Denison (see
note 15) representing approximately 17% of the issued and outstanding capital as at June 2009.
Pursuant to a strategic relationship agreement, KEPCO is entitled to subscribe for additional
common shares in Denison’s future share offerings. KEPCO also has the right to require Denison to
nominate two persons designated by KEPCO to Denison’s board of directors if KEPCO holds at least a
15% share interest in Denison (or one director if KEPCO’s share interest is between 5% and 15%).
Currently, KEPCO’s interest in Denison is approximately 15.8%.
Other
The Company has incurred management and administrative service fees of $82,000 (2009:
$53,000) with a company owned by the Chairman of the Company which provides corporate development,
office premises, secretarial and other services. At December 31, 2010, an amount of $nil (2009:
$nil) was due to this company.
In December 2010, the Company agreed to make a donation of $658,000 to Lundin for Africa, a
not-for-profit organization with a common director. Lundin for Africa has programs in Zambia,
Mongolia as well as many other countries. At December 31, 2010, an amount of $658,000 was due to
this organization.
Denison Mines Corp. Annual Report 2010 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 23. |
|
JOINT VENTURE INTERESTS |
| |
|
The Company conducts a substantial portion of its production and exploration activities
through joint ventures. The joint ventures allocate production and exploration expenses to each
joint venture participant and the participant derives revenue directly from the sale of such
product. The Company records its proportionate share of assets, liabilities and operating costs
of the joint ventures. |
| |
|
A summary of joint venture information is as follows: |
| |
|
|
|
|
|
|
|
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Operating expenses |
|
$ |
35,160 |
|
|
$ |
29,922 |
|
Mineral property exploration |
|
|
5,664 |
|
|
|
7,616 |
|
General and administrative |
|
|
145 |
|
|
|
178 |
|
Impairment — intangibles |
|
|
— |
|
|
|
359 |
|
Net other expense (income) |
|
|
655 |
|
|
|
363 |
|
|
|
|
|
|
|
|
Loss for the year before taxes |
|
|
41,624 |
|
|
|
38,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
6,135 |
|
|
|
24,059 |
|
Plant and equipment |
|
|
95,969 |
|
|
|
92,343 |
|
Mineral properties |
|
|
340,772 |
|
|
|
329,323 |
|
Current liabilities |
|
|
(1,600 |
) |
|
|
(3,120 |
) |
Long-term liabilities |
|
|
(2,836 |
) |
|
|
(2,193 |
) |
|
|
|
|
|
|
|
Net investment in joint ventures |
|
$ |
438,440 |
|
|
$ |
440,412 |
|
|
|
|
|
|
|
|
| 24. |
|
CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENT RISK |
| |
|
The Company’s capital includes cash and cash equivalents, debt obligations and
shareholder’s equity. The Company’s primary objective with respect to its capital management is
to ensure that it has sufficient capital to maintain its ongoing operations, to provide returns
for shareholders and benefits for other stakeholders and to pursue growth opportunities. |
| |
|
The Company’s capital is as follows: |
| |
|
|
|
|
|
|
|
|
| |
|
At December 31, |
|
|
At December 31, |
|
| (in thousands) |
|
2010 |
|
|
2009 |
|
Cash and cash equivalents |
|
$ |
(97,554 |
) |
|
$ |
(19,804 |
) |
Debt obligations — current |
|
|
200 |
|
|
|
869 |
|
Debt obligations — long term |
|
|
205 |
|
|
|
195 |
|
|
|
|
|
|
|
|
Net debt (cash and cash equivalents) |
|
|
(97,149 |
) |
|
|
(18,740 |
) |
|
|
|
|
|
|
|
Shareholder’s equity |
|
|
806,105 |
|
|
|
728,228 |
|
|
|
|
|
|
|
|
Total capital |
|
$ |
708,956 |
|
|
$ |
709,488 |
|
|
|
|
|
|
|
|
Fair Values of Financial Instruments
The Company examines the various financial instrument risks to which it is exposed and
assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity
risk, currency risk, interest rate risk and price risk.
58 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(a) Credit Risk
| |
|
Credit risk is the risk of loss due to a counterparty’s inability to meet its obligations
under a financial instrument that will result in a financial loss to the Company. The carrying
amount of financial assets represents the maximum credit exposure. The Company trades only with
recognized, credit worthy third parties. |
| |
|
The maximum exposure to credit risk at the reporting date is as follows: |
| |
|
|
|
|
| (in thousands) |
|
2010 |
|
Cash and cash equivalents |
|
$ |
97,554 |
|
Trade and other receivables |
|
|
20,236 |
|
Investments |
|
|
2,955 |
|
Restricted cash and investments |
|
|
22,946 |
|
|
|
|
|
|
|
$ |
143,691 |
|
|
|
|
|
(b) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting
obligations associated with its financial liabilities. The Company has in place a planning and
budgeting process to help determine 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 and its holdings of cash and cash equivalents.
The maturities of the Company’s financial liabilities are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Within 1 |
|
|
1 to 5 |
|
| (in thousands) |
|
Year |
|
|
Years |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
13,753 |
|
|
$ |
— |
|
Debt obligations (Note 13) |
|
|
200 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
$ |
13,953 |
|
|
$ |
205 |
|
|
|
|
|
|
|
|
(c) Currency Risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates. The Company operates
internationally and is exposed to foreign exchange risk arising from various currency exposures.
Foreign exchange risk arises from assets and liabilities that are denominated in a currency that is
not the functional currency for the relevant subsidiary company.
Currently, the Company does not have any foreign exchange hedge programs in place and manages its
operational foreign exchange requirements through spot purchases in the foreign exchange markets.
The sensitivity of the Company’s net income due to changes in the exchange rate between the
Canadian dollar and its Zambian kwacha functional currencies and its United States dollar reporting
currency as at December 31, 2010 is summarized below:
| |
• |
|
For each 10 percent increase in the USD$ to CDN$ foreign exchange rate (from 0.9946 at
year-end to 1.0941), the Company’s net income increases by $16,654,000; and |
| |
• |
|
For each 10 percent increase in the USD$ to ZMK$ foreign exchange rate (from 4,928.30 at
year-end to 5,421.13), the Company’s net income decreases by $3,400,000. |
(d) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The Company is exposed to
interest rate risk on its outstanding borrowings and short-term investments. The Company monitors
its exposure to interest rates and has not entered into any derivative contracts to manage this
risk.
During 2010, the Company has incurred $27,000 of interest expense on its outstanding borrowings.
The weighted average interest rate paid by the Company during 2010 on its outstanding borrowings
was 3.61%. All of the Company’s outstanding borrowings currently carry fixed rates of interest.
(e) Price Risk
The Company is exposed to equity price risk as a result of holding equity investments in
other exploration and mining companies. The Company does not actively trade these investments.
Denison Mines Corp. Annual Report 2010 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
The sensitivity analysis below has been determined based on the exposure to equity price
risk at December 31, 2010: |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Change in |
|
| |
|
Change in |
|
|
Comprehensive |
|
| (in thousands) |
|
Net Income (1) |
|
|
Net Income (1) |
|
Equity price risk |
|
|
|
|
|
|
|
|
10% increase in equity prices |
|
$ |
— |
|
|
$ |
296 |
|
10% decrease in equity prices |
|
$ |
— |
|
|
$ |
(296 |
) |
|
|
|
| (1) |
|
In the above table, positive (negative) values represent increases (decreases)
in net income and comprehensive net income respectively. |
(f) Fair Value Estimation
CICA Handbook Section 3862 “Financial Instruments-Disclosures” requires disclosures about the
inputs to fair value measurements, including their classification within a hierarchy that
prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are:
| |
• |
|
Level 1 — Unadjusted quoted prices in active markets for identical assets or
liabilities; |
| |
• |
|
Level 2 — Inputs other than quoted prices that are observable for the asset or liability
either directly or indirectly; and |
| |
• |
|
Level 3 — Inputs that are not based on observable market data. |
The fair value of financial instruments which trade in active markets (such as available-for-sale
securities) is based on quoted market prices at the balance sheet date. The quoted marked price
used to value financial assets held by the Company is the current bid price.
Except as otherwise disclosed, the fair values of cash and cash equivalents, trade and other
receivables, accounts payable and accrued liabilities, restricted cash and cash equivalents and
debt obligations approximate their carrying values as a result of the short-term nature of the
instruments, or the variable interest rate associated with the instruments, or the fixed interest
rate of the instruments being similar to market rates.
The following table illustrates the classification of the Company’s financial assets within the
fair value hierarchy as at December 31, 2010:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
| (in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Value |
|
Financial assets at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments — Available for sale securities (1) |
|
$ |
2,955 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,955 |
|
Restricted investments (2) |
|
|
15,983 |
|
|
|
— |
|
|
|
— |
|
|
|
15,983 |
|
|
|
|
| (1) |
|
Classification designated as “available-for-sale”. |
| |
| (2) |
|
Classification designated as “held-to-trading”. See note 6 for amount of
restricted investments within restricted cash and investments asset amount. |
| 25. |
|
COMMITMENTS AND CONTINGENCIES |
| |
|
The Company is involved, from time to time, in various legal actions and claims in the
ordinary course of business. In the opinion of management, the aggregate amount of any
potential liability is not expected to have a material adverse effect on the Company’s
financial position or results. |
| |
|
The Company has agreed to indemnify Calfrac Well Services against any future liabilities
it may incur related to the assets or liabilities transferred to the Company on March 8, 2004. |
| |
|
Performance Bonds and Letters of Credit |
| |
|
In conjunction with various contracts, reclamation and other performance obligations, the
Company may be required to issue performance bonds and letters of credit as security to
creditors to guarantee the Company’s performance. Any potential payments which might become due
under these items would be related to the Company’s non-performance under the applicable
contract. As at December 31, 2010, the Company had outstanding bonds and letters of credit of
$39,368,000 of which $20,315,000 is collateralized by restricted cash and equivalents (see note
6) and $19,816,000 is collateralized by a reduction in the Company’s line of credit limit
available for general corporate purposes. |
60 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
The Company has committed to payments under various operating leases and other
commitments. The future minimum payments are as follows: |
| |
|
|
|
|
| (in thousands) |
|
|
|
|
2011 |
|
$ |
13,551 |
|
2012 |
|
|
3,269 |
|
2013 |
|
|
3,257 |
|
2014 |
|
|
1,722 |
|
2015 |
|
|
368 |
|
2016 and thereafter |
|
|
— |
|
| |
|
In February 2011, the Company entered into a Bid Implementation Agreement with White
Canyon Uranium Limited (“White Canyon”). Under the agreement, the Company has agreed to make a
takeover offer to acquire 100% of the issued and outstanding shares of White Canyon at a price
of AUD$0.24 per share for total consideration of approximately AUD$57,000,000. Denison’s offer
is subject to a number of conditions including the requirement that Denison acquire a relevant
interest in at least 90% of White Canyon’s share capital during or by the end of the offer
period. The bidder’s statement to White Canyon’s shareholders is expected to be available
before the end of March 2011. |
| |
|
In February 2011, the Company entered into an agreement with a syndicate of investment dealers
who has agreed to purchase 18,300,000 common shares of the Company at a purchase price of
CDN$3.55 per common share for aggregate gross proceeds of CDN$64,965,000. The offering is
scheduled to close on March 15, 2011. Pursuant to its strategic relationship agreement with
Denison, KEPCO is entitled to subscribe for approximately 3,442,000 common shares at the
subscription price of CDN$3.55 per common share that would allow it to maintain its existing
shareholding level in Denison. KEPCO has not yet indicated whether it will exercise this right. |
| 27. |
|
MATERIAL DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
| |
|
The consolidated financial statements have been prepared in accordance with Canadian GAAP
which differ in certain material respects from those principles and practices that the Company
would have followed had its consolidated financial statements been prepared in accordance with
U.S. GAAP. Material differences between financial statement items under Canadian GAAP and the
amounts determined under U.S. GAAP are as follows: |
a) Cash and Equivalents
| |
|
U.S. GAAP requires that funds raised through the issuance of flow-through shares be shown
as restricted cash and not be considered to be a component of cash and cash equivalents. In
addition, the restricted cash would be excluded from cash and cash equivalents in the statement
of cash flows and shown as a financing activity. At December 31, 2010 $4,106,000 of funds
raised from the issue of flow-through shares remained (December 31, 2009: $1,177,000). |
b) Mineral Properties and Inventory Valuation
| |
|
Under Canadian GAAP, the Company expenses exploration and development expenditures on
mineral properties not sufficiently advanced to identify their development potential. At the
point in time when management has concluded that the mineral property has sufficient
development potential, costs are accumulated and recorded as mineral property assets. Under
U.S. GAAP and practices prescribed by the SEC, all mine project related costs incurred before a
commercially mineable deposit is established are expensed as incurred. The U.S. defines a
commercially mineable deposit as one with proven and probable reserves which are legally
extractable and a bankable feasibility study. |
| |
|
The Company amortizes its mineral property assets on a units of production basis and includes
that amount in the valuation of work-in-progress and concentrate inventories. Since the value
of the Company’s mineral property assets is less under U.S. GAAP than Canadian GAAP, the amount
amortized to inventory is also less. As a result, the carrying value of inventory also tends to
be less to reflect the lower mineral property amortization cost. |
| |
|
The lower carrying values for the Company’s mineral properties and inventory under U.S.
GAAP also result in lower impairment charges and net realizable value adjustments being
recorded in a particular period when compared to Canadian GAAP. |
Denison Mines Corp. Annual Report 2010 61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
c) Joint Ventures
| |
|
Under Canadian GAAP, investments in jointly-controlled entities are permitted to be
accounted for using the proportionate consolidation method. Under U.S. GAAP, investments in
jointly-controlled entities are accounted for using the equity method. Although there are
material differences between these accounting methods, the Company relies on an accommodation
of the United States Securities and Exchange Commission (“SEC”) permitting the Company to
exclude the disclosure of such differences which affect only the display and classification of
financial statement items excluding shareholders’ equity and net income. |
d) Goodwill
| |
|
Under Canadian GAAP, the Company’s formation in 1997 through an amalgamation of IUC with
Thornbury Capital Corporation (“Thornbury”) has been accounted for as an acquisition of
Thornbury resulting in the recording of goodwill. Under U.S. GAAP, the transaction has been
accounted for as a recapitalization whereby the net monetary assets of Thornbury would be
recorded at fair value, except that no goodwill or other intangibles would be recorded. The
goodwill recorded under Canadian GAAP has been subsequently written off. As a result, the
deficit and share capital of the Company are both reduced under U.S. GAAP. |
e) Liabilities relating to flow-through shares
| |
|
Under U.S. GAAP, the sale of flow-through shares results in a liability being recognized
for the excess of the purchase price paid by the investors over the fair value of common shares
at the closing date without the flow-through feature. The fair value of the shares is recorded
as equity. When the tax deductibility of the expenditures is renounced, the liability is
reversed and a future income tax liability is recorded for the amount of the benefits renounced
to third parties and an income tax expense is recognized. Under Canadian GAAP, an adjustment to
share capital is recorded for recognized future tax liabilities related to the renunciation of
flow-through share expenditures. |
f) Dilution Gains
| |
|
Under Canadian GAAP, gains on dilution of interests in a subsidiary or equity interest
are recognized in income in the period in which they occur. Under U.S. GAAP, the gain on
dilution is not recognized if it results from the sale of securities by a company in the
exploration stage and instead is accounted for as a capital transaction. |
| |
|
The consolidated balance sheet items, adjusted to comply with U.S. GAAP, would be as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2010 |
|
| |
|
Canadian |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| |
|
GAAP |
|
|
|
|
|
|
Adjustments |
|
|
GAAP |
|
Cash and cash equivalents |
|
$ |
97,554 |
|
|
|
(a |
) |
|
$ |
(4,106 |
) |
|
$ |
93,448 |
|
Inventories |
|
|
32,387 |
|
|
|
(b |
) |
|
|
(3,691 |
) |
|
|
28,696 |
|
Restricted cash and investments |
|
|
22,946 |
|
|
|
(a |
) |
|
|
4,106 |
|
|
|
27,052 |
|
Property, plant and equipment |
|
|
714,458 |
|
|
|
(b |
) |
|
|
(91,102 |
) |
|
|
623,356 |
|
Accounts payable and accrued liabilities |
|
|
13,753 |
|
|
|
(e |
) |
|
|
— |
|
|
|
13,753 |
|
Future income tax liability |
|
|
106,183 |
|
|
|
(b |
) |
|
|
3,079 |
|
|
|
109,262 |
|
Share capital |
|
|
910,484 |
|
|
|
(d |
) |
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
(e |
) |
|
|
1,198 |
|
|
|
911,066 |
|
Additional paid-in capital |
|
|
— |
|
|
|
(f |
) |
|
|
9,814 |
|
|
|
9,814 |
|
Deficit |
|
|
(256,729 |
) |
|
|
(b |
) |
|
|
(93,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
(b |
) |
|
|
(3,079 |
) |
|
|
|
|
|
|
|
|
|
|
|
(d |
) |
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
(e |
) |
|
|
(855 |
) |
|
|
|
|
|
|
|
|
|
|
|
(f |
) |
|
|
(9,814 |
) |
|
|
(363,856 |
) |
Accumulated other comprehensive income |
|
|
104,862 |
|
|
|
(b |
) |
|
|
(798 |
) |
|
|
|
|
|
|
|
|
|
|
|
(e |
) |
|
|
(343 |
) |
|
|
103,721 |
|
62 Denison Mines Corp. Annual Report 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2009 |
|
| |
|
Canadian |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| |
|
GAAP |
|
|
|
|
|
|
Adjustments |
|
|
GAAP |
|
Cash and cash equivalents |
|
$ |
19,804 |
|
|
|
(a |
) |
|
$ |
(1,177 |
) |
|
$ |
18,627 |
|
Inventories |
|
|
52,216 |
|
|
|
(b |
) |
|
|
(3 |
) |
|
|
52,213 |
|
Restricted cash and investments |
|
|
21,656 |
|
|
|
(a |
) |
|
|
1,177 |
|
|
|
22,833 |
|
Property, plant and equipment |
|
|
691,039 |
|
|
|
(b |
) |
|
|
(86,377 |
) |
|
|
604,662 |
|
Accounts payable and accrued liabilities |
|
|
9,508 |
|
|
|
(e |
) |
|
|
39 |
|
|
|
9,547 |
|
Future income tax liability |
|
|
102,918 |
|
|
|
(b |
) |
|
|
3,328 |
|
|
|
106,246 |
|
Share capital |
|
|
849,488 |
|
|
|
(d |
) |
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
(e |
) |
|
|
(39 |
) |
|
|
848,833 |
|
Additional paid-in capital |
|
|
— |
|
|
|
(f |
) |
|
|
9,814 |
|
|
|
9,814 |
|
Deficit |
|
|
(242,494 |
) |
|
|
(b |
) |
|
|
(86,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
(b |
) |
|
|
(3,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
(d |
) |
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
(f |
) |
|
|
(9,814 |
) |
|
|
(341,039 |
) |
Accumulated other comprehensive loss |
|
|
75,482 |
|
|
|
(b |
) |
|
|
(362 |
) |
|
|
75,120 |
|
The consolidated statements of operations and deficit and comprehensive income, adjusted to comply
with U.S. GAAP, would be as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2010 |
|
|
2009 |
|
Net loss for the year, Canadian GAAP |
|
|
|
|
|
$ |
(14,235 |
) |
|
$ |
(147,012 |
) |
Adjustments to U.S. GAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property capitalized amounts |
|
|
(b |
) |
|
|
(4,288 |
) |
|
|
(40,896 |
) |
Mineral property impairment amounts |
|
|
(b |
) |
|
|
— |
|
|
|
17,717 |
|
Inventory valuation |
|
|
(b |
) |
|
|
(3,688 |
) |
|
|
906 |
|
Tax effect of above adjustments |
|
|
(b |
) |
|
|
249 |
|
|
|
(4,701 |
) |
Flow-through share renunciation adjustment |
|
|
(e |
) |
|
|
(855 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year, U.S. GAAP |
|
|
|
|
|
$ |
(22,817 |
) |
|
$ |
(173,986 |
) |
|
|
|
|
|
|
|
|
|
|
Deficit, beginning of year, U.S. GAAP |
|
|
|
|
|
$ |
(341,039 |
) |
|
$ |
(167,053 |
) |
|
|
|
|
|
|
|
|
|
|
Deficit, end of year, U.S. GAAP |
|
|
|
|
|
$ |
(363,856 |
) |
|
$ |
(341,039 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), U.S. GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year, U.S. GAAP |
|
|
|
|
|
$ |
(22,817 |
) |
|
$ |
(173,986 |
) |
Unrealized gain (loss) on available-for-sale securities |
|
|
|
|
|
|
(2,490 |
) |
|
|
3,368 |
|
Cumulative foreign currency translation gain |
|
|
|
|
|
|
31,090 |
|
|
|
75,894 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), U.S. GAAP |
|
|
|
|
|
|
5,783 |
|
|
|
(94,724 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net loss per share, U.S. GAAP |
|
|
|
|
|
$ |
(0.07 |
) |
|
$ |
(0.61 |
) |
Diluted net loss per share, U.S. GAAP |
|
|
|
|
|
$ |
(0.07 |
) |
|
$ |
(0.61 |
) |
Denison Mines Corp. Annual Report 2010 63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| |
|
The consolidated statements of cash flows, adjusted to comply with U.S. GAAP, would be as
follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2010 |
|
|
2009 |
|
Net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Under Canadian GAAP |
|
|
|
|
|
$ |
35,551 |
|
|
$ |
(42,442 |
) |
Adjustment for capitalized mineral property amounts |
|
|
(b |
) |
|
|
(14,305 |
) |
|
|
(25,104 |
) |
|
|
|
|
|
|
|
|
|
|
Under U.S. GAAP |
|
|
|
|
|
$ |
21,246 |
|
|
$ |
(67,546 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Under Canadian GAAP |
|
|
|
|
|
$ |
(19,472 |
) |
|
$ |
(27,116 |
) |
Adjustment for capitalized mineral property amounts |
|
|
(b |
) |
|
|
14,305 |
|
|
|
25,104 |
|
|
|
|
|
|
|
|
|
|
|
Under U.S. GAAP |
|
|
|
|
|
$ |
(5,167 |
) |
|
$ |
(2,012 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Under Canadian GAAP |
|
|
|
|
|
$ |
60,595 |
|
|
$ |
85,414 |
|
Restricted cash from flow-through financings |
|
|
(a |
) |
|
|
(4,106 |
) |
|
|
(1,177 |
) |
|
|
|
|
|
|
|
|
|
|
Under U.S. GAAP |
|
|
|
|
|
$ |
56,489 |
|
|
$ |
84,237 |
|
|
|
|
|
|
|
|
|
|
|
Accounting Changes:
Accounting Developments Effective for Fiscal 2010:
| |
a) |
|
Amendments to Accounting for VIEs — In 2009, the FASB issued an amendment to its guidance on
Variable Interest Entities (“VIE”). Although not effective until first quarter 2010, this new guidance makes significant changes to
the model for determining who should consolidate a VIE by specifically eliminating the
quantitative approach to determining the primary beneficiary. The amendment requires the use of a
qualitative approach to determine the primary beneficiary, based on the power to direct
activities of the VIE that most significantly impact its economic performance and an obligation
to absorb losses or to receive benefits of the VIE. If the power is shared, then no party is the
primary beneficiary. This amendment did not have an impact on the Company’s financial statements. |
Accounting Developments Effective for Fiscal 2011:
The Company will cease to reconcile its financial statements to U.S. GAAP for the periods beginning
on January 1, 2011 when it will start to apply International Financial Reporting Standards (“IFRS”)
as published by the International Accounting Standards Board as set out in Part IV of the CICA
Handbook — Accounting as its primary basis of accounting. Consequently, future accounting changes
to U.S. GAAP that are effective for periods beginning on or after January 1, 2011 are not discussed
as they will not be applied by the Company.
64 Denison Mines Corp. Annual Report 2010
Corporate Information
BOARD OF DIRECTORS
Joo-Ok Chang
Seoul, Korea
John H. Craig
Ontario, Canada
W. Robert Dengler
Ontario, Canada
Brian D. Edgar
British Columbia, Canada
Ron F. Hochstein
British Columbia, Canada
Tae-Wan Kim
Seoul, Korea
Lukas H. Lundin
British Columbia, Canada
William A. Rand
British Columbia, Canada
Catherine J.G. Stefan
Ontario, Canada
OFFICERS
Lukas H. Lundin
Chairman
Ron F. Hochstein
President and
Chief Executive Officer
James R. Anderson
Executive Vice
President and
Chief Financial Officer
Harold R. Roberts
Executive Vice
President,
U.S. Operations
Philip G. Buck
Vice President, U.S. Mining
Donald C. Campbell
Vice President, Commercial
David C. Frydenlund
Vice President, U.S. Legal
and Regulatory Affairs
& Corporate Secretary
William C. Kerr
Vice President, Exploration
Curt D. Steel
Vice President,
Sales and Marketing
Sheila Colman
Canadian Counsel &
Assistant Corporate Secretary
Michael J. Schoonderwoerd
Controller
OFFICES
Head Office
Denison Mines Corp.
Atrium on Bay
595 Bay Street, Suite 402
Toronto, Ontario M5G 2C2
Telephone: 416-979-1991
Facsimile: 416-979-5893
Website: www.denisonmines.com
Denison Mines Corp.
885 West Georgia Street, Suite 2101
Vancouver, British
Columbia V6C 3E8
Telephone: 604-689-7842
Toll Free: 1-888-689-7842
Facsimile: 604-689-4250
Denison Mines Corp.
230 — 22nd Street East, Suite 200
Saskatoon, Saskatchewan S7K 0E9
Telephone: 306-652-8200
Facsimile: 306-652-8202
Denison Environmental Services
8 Kilborn Way
Elliot Lake, Ontario P5A 2T1
Telephone: 705-848-9191
Facsimile: 705-848-5814
Website: www.denisonenvironmental.com
Denison Mines (USA) Corp.
1050 Seventeenth Street, Suite 950
Denver, Colorado 80265
Telephone: 303-628-7798
Facsimile: 303-389-4125
Denison Mines Mongolia XXK
Str. Olympia 8, Shuren Building
Sukhbaatar District
Ulaanbaatar 13, Mongolia
Telephone: +976-11-330502
Facsimile: +976-11-318660
Denison Mines Zambia Limited
Plot 230 Kasangula Road
Roma, Lusaka, Zambia
Telephone: +260-21-1294292
Facsimile: +260-21-1294296
STOCK EXCHANGE LISTINGS
The Toronto Stock Exchange (TSX)
Trading Symbol: DML
NYSE Amex LLC
Trading Symbol: DNN
SHARE REGISTRAR AND TRANSFER AGENT
Computershare Investor Services Inc.
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Telephone: 1-800-564-6253
AUDITORS
PricewaterhouseCoopers LLP
77 King Street West, Suite 3000
Royal Trust Tower, TD Centre
Toronto, Ontario M5K 1G8
Telephone: 416-863-1133
ADDITIONAL INFORMATION
Further information about Denison is available by contacting Investor
Relations at the head
office
listed above or by
email to:
info@denisonmines.com
Denison Mines Corp. Annual Report 2010 65
