0001654954-19-005207.txt : 20190502 0001654954-19-005207.hdr.sgml : 20190502 20190502170942 ACCESSION NUMBER: 0001654954-19-005207 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190502 DATE AS OF CHANGE: 20190502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DENISON MINES CORP. CENTRAL INDEX KEY: 0001063259 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS METAL ORES [1090] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33414 FILM NUMBER: 19792949 BUSINESS ADDRESS: STREET 1: 40 UNIVERSITY AVE., SUITE 1100 CITY: TORONTO STATE: A6 ZIP: M5J 1T1 BUSINESS PHONE: (416) 979-1991 MAIL ADDRESS: STREET 1: 40 UNIVERSITY AVE., SUITE 1100 CITY: TORONTO STATE: A6 ZIP: M5J 1T1 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL URANIUM CORP DATE OF NAME CHANGE: 19980603 6-K 1 form6k-may022019.htm FORM 6-K DATED MAY 2, 2019 Blueprint
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 6-K
 
 
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
Date: May 2, 2019
Commission File Number: 001-33414
 
 
 
Denison Mines Corp.
(Translation of registrant’s name into English)
 
 
 
1100-40 University Avenue, Toronto Ontario, M5J 1T1 Canada
(Address of principal executive offices)
 
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
 
Form 20-F  ☐            Form    40-F   ☒
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐
 
 
 
 
Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
Denison Mines Corp.
 
 
 
 
 
 
 
/s/ Amanda Willett
Date May 2, 2019
 
 
 
Amanda Willett
 
 
 
 
Corporate Counsel and Corporate Secretary
 
 
 
 
 
EXHIBIT INDEX
 
 
 
EX-99.1 2 a2019-03dmcfinancialsfili.htm CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2019 Blueprint
Exhibit 99.1 
 
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
(Unaudited - Expressed in thousands of Canadian dollars (“CAD”) except for share amounts)
 
 
 
 
At March 31
2019
 
At December 31
2018
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
Current
 
 
 
 
 
 
Cash and cash equivalents (note 5)
 
 
$
19,027
$
23,207
Trade and other receivables (note 6)
 
 
 
4,157
 
4,072
Inventories (note 7)
 
 
 
3,520
 
3,584
Prepaid expenses and other
 
 
 
632
 
843
 
 
 
 
27,336
 
31,706
Non-Current
 
 
 
 
 
 
Inventories-ore in stockpiles (note 7)
 
 
 
2,098
 
2,098
Investments (note 8)
 
 
 
2,132
 
2,255
Investments in associates (note 9)
 
 
 
5,305
 
5,582
Restricted cash and investments (note 10)
 
 
 
12,552
 
12,255
Property, plant and equipment (note 11)
 
 
 
258,241
 
258,291
Total assets
 
 
$
307,664
$
312,187
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
Current
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
 
$
7,338
$
5,554
Current portion of long-term liabilities:
 
 
 
 
 
 
Deferred revenue (note 12)
 
 
 
4,580
 
4,567
Post-employment benefits (note 13)
 
 
 
150
 
150
Reclamation obligations (note 14)
 
 
 
863
 
877
Other liabilities (note 15)
 
 
 
280
 
1,337
 
 
 
 
13,211
 
12,485
Non-Current
 
 
 
 
 
 
Deferred revenue (note 12)
 
 
 
32,684
 
33,160
Post-employment benefits (note 13)
 
 
 
2,123
 
2,145
Reclamation obligations (note 14)
 
 
 
29,360
 
29,187
Other liabilities (note 15)
 
 
 
654
 
-
Deferred income tax liability
 
 
 
12,114
 
12,963
Total liabilities
 
 
 
90,146
 
89,940
 
 
 
 
 
 
 
EQUITY
 
 
 
 
 
 
Share capital (note 16)
 
 
 
1,331,214
 
1,331,214
Share purchase warrants (note 17)
 
 
 
435
 
435
Contributed surplus (note 18)
 
 
 
64,237
 
63,634
Deficit
 
 
 
(1,179,498)
 
(1,174,163)
Accumulated other comprehensive income (note 19)
 
 
 
1,130
 
1,127
Total equity
 
 
 
217,518
 
222,247
Total liabilities and equity
 
 
$
307,664
$
312,187
 
 
 
 
 
 
 
Issued and outstanding common shares (note 16)
 
 
589,128,908
 
589,175,086
Contingencies (note 25)
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are integral to the condensed interim consolidated financial statements
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
 
(Unaudited - Expressed in thousands of CAD dollars except for share and per share amounts)
 
 
 
 
Three Months Ended
March 31
 
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES (note 21)
 
 
 
 
$
3,976
$
3,573
 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
Operating expenses (note 20, 21)
 
 
 
 
 
(3,262)
 
(3,593)
Exploration and evaluation (note 21)
 
 
 
 
 
(4,229)
 
(6,254)
General and administrative (note 21)
 
 
 
 
 
(2,366)
 
(1,832)
Impairment reversal (note 21)
 
 
 
 
 
-
 
11
Other income (expense) (note 20)
 
 
 
 
 
(353)
 
(3,456)
 
 
 
 
 
 
(10,210)
 
(15,124)
Loss before finance charges, equity accounting
 
 
 
 
 
(6,234)
 
(11,551)
Finance expense (note 20)
 
 
 
 
 
(1,010)
 
(711)
Equity share of loss of associate (note 9)
 
 
 
 
 
(277)
 
(643)
Loss before taxes
 
 
 
 
 
(7,521)
 
(12,905)
Income tax recovery (note 23)
 
 
 
 
 
 
 
 
Deferred
 
 
 
 
 
2,186
 
5,937
Net loss for the period
 
 
 
 
$
(5,335)
$
(6,968)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) (note 19):
 
 
 
 
 
 
 
 
Items that may be reclassified to income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation change
 
 
 
 
 
3
 
(4)
Comprehensive loss for the period
 
 
 
 
$
(5,332)
$
(6,972)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net loss per share:
 
 
 
 
 
 
 
 
All operations
 
 
 
 
$
(0.01)
$
(0.01)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average number of shares outstanding (in thousands):
 
 
 
 
Basic and diluted
 
 
 
 
 
589,129
 
559,183
 
 
 
 
 
 
 
 
 
The accompanying notes are integral to the condensed interim consolidated financial statements
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
(Unaudited - Expressed in thousands of CAD dollars)
 
 
 
 
Three Months Ended
March 31
 
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share capital
 
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
$
1,331,214
$
1,310,473
Balance-end of period
 
 
 
 
 
1,331,214
 
1,310,473
 
 
 
 
 
 
 
 
 
Share purchase warrants
 
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
 
435
 
435
Balance-end of period
 
 
 
 
 
435
 
435
 
 
 
 
 
 
 
 
 
Contributed surplus
 
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
 
63,634
 
61,799
Share-based compensation expense (note 18)
 
 
 
 
 
603
 
363
Balance-end of period
 
 
 
 
 
64,237
 
62,162
 
 
 
 
 
 
 
 
 
Deficit
 
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
 
(1,174,163)
 
(1,144,086)
Net loss
 
 
 
 
 
(5,335)
 
(6,968)
Balance-end of period
 
 
 
 
 
(1,179,498)
 
(1,151,054)
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income
 
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
 
1,127
 
1,140
Foreign currency translation
 
 
 
 
 
3
 
(4)
Balance-end of period
 
 
 
 
 
1,130
 
1,136
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Equity
 
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
 
222,247
 
229,761
Balance-end of period
 
 
 
 
$
217,518
$
223,152
 
 
 
 
 
 
 
 
 
The accompanying notes are integral to the condensed interim consolidated financial statements
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
 
(Unaudited - Expressed in thousands of CAD dollars)
 
 
 
 
Three Months Ended
March 31
CASH PROVIDED BY (USED IN):
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
Net loss for the period
 
 
 
 
$
(5,335)
$
(6,968)
Items not affecting cash and cash equivalents:
 
 
 
 
 
 
 
 
Depletion, depreciation, amortization and accretion
 
 
 
 
 
2,236
 
2,186
Impairment reversal
 
 
 
 
 
-
 
(11)
Share-based compensation (note 18)
 
 
 
 
 
603
 
363
Recognition of deferred revenue (note 12)
 
 
 
 
 
(1,263)
 
(780)
Gains on property, plant and equipment disposals (note 20)
 
 
 
-
 
(36)
Losses on investments (note 8)
 
 
 
238
 
3,405
Equity loss of associate (note 9)
 
 
 
275
 
663
Dilution loss (gain) of associate (note 9)
 
 
 
2
 
(20)
Deferred income tax recovery
 
 
 
 
 
(2,186)
 
(5,937)
Foreign exchange losses
 
 
 
 
 
-
 
3
Post-employment benefits (note 13)
 
 
 
 
 
(39)
 
(24)
Reclamation obligations (note 14)
 
 
 
 
 
(181)
 
(189)
Change in non-cash working capital items (note 20)
 
 
 
 
 
1,971
 
2,644
Net cash used in operating activities
 
 
 
 
 
(3,679)
 
(4,701)
 
 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
Sale of investments (note 8)
 
 
 
 
 
-
 
37,500
Purchase of investments (note 8)
 
 
 
 
 
(115)
 
-
Expenditures on property, plant and equipment (note 11)
 
 
 
(21)
 
(83)
Proceeds on sale of property, plant and equipment
 
 
 
 
 
-
 
47
Increase in restricted cash and investments
 
 
 
(297)
 
(631)
Net cash provided by (used in) investing activities
 
 
 
 
 
(433)
 
36,833
 
 
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
Payment of lease obligations
 
 
 
 
 
(68)
 
-
Net cash used in financing activities
 
 
 
 
 
(68)
 
-
 
 
 
 
 
 
 
 
 
Increase (decrease) in cash and cash equivalents
 
 
 
 
 
(4,180)
 
32,132
Cash and cash equivalents, beginning of period
 
 
 
 
 
23,207
 
3,636
Cash and cash equivalents, end of period
 
 
 
 
$
19,027
$
35,768
 
 
The accompanying notes are integral to the condensed interim consolidated financial statements
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2019
 
 
(Unaudited - Expressed in CAD dollars except for shares and per share amounts)
 
 
1.
NATURE OF OPERATIONS
 
Denison Mines Corp. (“DMC”) and its subsidiary companies and joint arrangements (collectively, “Denison” or the “Company”) are engaged in uranium mining related activities, which can include acquisition, exploration and development of uranium bearing properties, extraction, processing and selling of uranium.
 
The Company has a 90.00% interest in the Wheeler River Joint Venture (“WRJV”), a 65.92% interest in the Waterbury Lake Limited Partnership (“WLULP”), a 22.50% interest in the McClean Lake Joint Venture (“MLJV”) (which includes the McClean Lake mill) and a 25.17% interest in the Midwest Joint Venture (“MWJV”), each of which are located in the eastern portion of the Athabasca Basin region in northern Saskatchewan, Canada. The McClean Lake mill provides toll milling services to the Cigar Lake Joint Venture (“CLJV”) under the terms of a toll milling agreement between the parties (see note 12). In addition, the Company has varying ownership interests in a number of other development and exploration projects located in Canada.
 
The Company provides mine decommissioning and environmental consulting services (collectively “environmental services”) to third parties through its Denison Environmental Services (“DES”) division and is also the manager of Uranium Participation Corporation (“UPC”), a publicly-listed investment holding company formed to invest substantially all of its assets in uranium oxide concentrates (“U3O8”) and uranium hexafluoride (“UF6”). The Company has no ownership interest in UPC but receives fees for management services and commissions from the purchase and sale of U3O8 and UF6 by UPC.
 
DMC is incorporated under the Business Corporations Act (Ontario) and domiciled in Canada. The address of its registered head office is 40 University Avenue, Suite 1100, Toronto, Ontario, Canada, M5J 1T1.
 
 
2.
STATEMENT OF COMPLIANCE
 
These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. The condensed interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2018. The Company’s presentation currency is Canadian dollars.
 
These financial statements were approved by the board of directors for issue on May 1, 2019.
 
 
3.
ACCOUNTING POLICIES AND ACCOUNTING CHANGES
 
Significant Accounting Policies and Accounting Changes in Fiscal 2019
 
The significant accounting policies followed in these condensed interim consolidated financial statements are consistent with those applied in the Company’s audited annual consolidated financial statements for the year ended December 31, 2018, with the exception of the Company’s accounting for leases.
 
On January 1, 2019, Denison adopted the provisions of IFRS 16 Leases (“IFRS 16”) using the modified retrospective approach. As such, comparative information has not been restated and continues to be reported under International Accounting Standard 17 Leases (“IAS 17”) and International Financial Reporting Interpretation Committee 4 Determining Whether an Arrangement Contains a Lease (“IFRIC 4”). The transitional impact of the change in accounting policy is disclosed in note 4 and additional disclosures related to Denison’s IFRS 16 right-of-use assets and lease liabilities are disclosed in notes 11 and 15, respectively. Denison’s new accounting policy for leases is as follows:
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
A.
Leases
 
At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
the contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
the Company has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use; and
the Company has the right to direct the use of the asset. The Company has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Company has the right to direct the use of the asset if either: (a) the Company has the right to operate the asset; or (b) the Company designed the asset in a way that predetermines how and for what purpose it will be used.
 
If the contract contains a lease, a right-of-use asset and a corresponding lease liability are set-up at the date at which the leased asset is available for use by the Company. The lease payments are discounted using either the interest rate implicit in the lease, if available, or the Company’s incremental borrowing rate. Each lease payment is allocated between the liability and the finance cost (i.e. accretion) so as to produce a constant rate of interest on the remaining lease liability balance. The Company accounts for the lease and non-lease components separately. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
 
 
4.
ADOPTION OF NEW ACCOUNTING STANDARDS – IMPACT ON FINANCIAL STATEMENTS
 
As noted above, Denison adopted the provisions of IFRS 16 on January 1, 2019 using the modified retrospective approach. On transition to IFRS 16, the Company recognized an additional $944,000 of right-of-use assets (reported within “Property, Plant and Equipment” – see note 11) and an additional $944,000 of lease liabilities (reported within “Other Liabilities” – see note 15).
 
The underlying lease payments have been discounted using the Company’s incremental borrowing rate on January 1, 2019 of 8.50%. In applying IFRS 16 for the first time, Denison has used the following practical expedients permitted by the standard: a) leases with a term of less than 12 months remaining at January 1, 2019 have been accounted for as short-term leases; and b) initial direct costs for the measurement of the right-of-use asset at the date of initial application have been excluded.
 
A reconciliation of Denison’s December 31, 2018 lease commitments to its opening lease liabilities amount recognized under IFRS 16 is as follows:
 
 
 
 
At January 1
(in thousands of CAD dollars)
 
 
2019
 
 
 
 
Operating lease and other commitments per Denison’s December 31, 2018 annual financial statements
 
 
$
 
1,259
Adjustments to IFRS 16:
 
 
 
Recognition exemption for short-term leases
 
 
(13)
Other
 
 
(75)
Lease liabilities - undiscounted
 
 
1,171
Present value discount adjustment
 
 
(227)
Lease liabilities on transition to IFRS 16
 
$
944
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
5.
CASH AND CASH EQUIVALENTS
 
The cash and cash equivalent balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Cash
 
 
$
1,390
$
1,152
Cash in MLJV and MWJV
 
 
 
1,488
 
654
Cash equivalents
 
 
 
16,149
 
21,401
 
 
 
$
19,027
$
23,207
 
 
6.
TRADE AND OTHER RECEIVABLES
 
The trade and other receivables balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Trade receivables
 
 
$
3,542
$
2,952
Receivables in MLJV and MWJV
 
 
 
197
 
571
Sales tax receivables
 
 
 
142
 
98
Sundry receivables
 
 
 
26
 
201
Loan receivable (note 22)
 
 
 
250
 
250
 
 
 
$
4,157
$
4,072
 
 
7.
INVENTORIES
 
The inventories balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Uranium concentrates
 
 
$
526
$
526
Inventory of ore in stockpiles
 
 
 
2,098
 
2,098
Mine and mill supplies in MLJV
 
 
 
2,994
 
3,058
 
 
 
$
5,618
$
5,682
 
 
 
 
 
 
 
Inventories-by balance sheet presentation:
 
 
 
 
 
 
Current
 
 
$
3,520
$
3,584
Long-term-ore in stockpiles
 
 
 
2,098
 
2,098
 
 
 
$
5,618
$
5,682
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
8.
INVESTMENTS
 
The investments balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
Equity instruments
 
 
$
2,132
$
2,255
 
 
 
$
2,132
$
2,255
 
 
 
 
 
 
 
Investments-by balance sheet presentation:
 
 
 
 
 
 
Current
 
 
$
-
$
-
Long-term
 
 
 
2,132
 
2,255
 
 
 
$
2,132
$
2,255
 
The investments continuity summary is as follows:
 
 
 
(in thousands of CAD dollars)
 
 
 
 
 
Three Months
Ended March
31, 2019
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
$
2,255
Purchases
 
 
 
 
 
 
Equity instruments
 
 
 
 
 
115
Fair value loss to profit and loss
 
 
 
 
 
(238)
Balance-end of period
 
 
 
 
$
2,132
 
 
9.
INVESTMENT IN ASSOCIATES
 
The investment in associates balance consists of the Company’s investment in GoviEx Uranium Inc (“GoviEx”). A summary of the investment in GoviEx is as follows:
 
 
(in thousands of CAD dollars except share amounts)
 
 
 
Number of Common Shares
 
 
 
 
 
 
 
 
 
Balance-December 31, 2018
 
 
 
65,144,021
$
5,582
Equity share of net income (loss)
 
 
 
-
 
(275)
Dilution gain (loss)
 
 
 
-
 
(2)
Balance-March 31, 2019
 
 
 
65,144,021
$
5,305
 
GoviEx is a mineral resource company focused on the exploration and development of its uranium properties located in Africa. GoviEx maintains a head office located in Canada and is a public company listed on the TSX Venture Exchange. At March 31, 2019, Denison holds an approximate 16.20% interest in GoviEx based on publicly available information (December 31, 2018: 16.21%) and has one director appointed to the GoviEx board of directors. Through the extent of its share ownership interest and its seat on the board of directors, Denison has the ability to exercise significant influence over GoviEx and accordingly, is using the equity method to account for this investment.
 
The trading price of GoviEx on March 31, 2019 was $0.16 per share which corresponds to a quoted market value of $10,423,000 (December 31, 2018: $9,772,000) for the Company’s investment in GoviEx common shares.
 
The following table is a summary of the consolidated financial information of GoviEx on a 100% basis taking into account adjustments made by Denison for equity accounting purposes for fair value adjustments and differences in accounting policy. Denison records its equity investment entries in GoviEx one quarter in arrears (due to the information not yet being publicly available), adjusted for any material publicly disclosed share issuance transactions that have occurred. A reconciliation of GoviEx’s summarized information to Denison’s investment carrying value is also included.
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
At March 31
 
At December 31
(in thousands of USD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Total current assets
 
 
$
4,116
$
4,800
Total non-current assets
 
 
 
32,426
 
32,432 
Total current liabilities
 
 
 
(8,719)
 
(8,315) 
Total net assets
 
 
$
27,823
$
28,917 
 
 
 
 
 
 
 
 
 
 
 
3 Months Ended
 
12 Months Ended
 
 
 
 
March 31
 
December 31
(in thousands of USD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Revenue
 
 
$
-
$
-
Net loss
 
 
 
(1,277)
 
(1,892) 
Comprehensive loss
 
 
$
(1,277)
$
(1,892) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
Reconciliation of GoviEx net assets to Denison investment carrying value:
 
 
Net assets of GoviEx-beginning of period-USD
 
 
$
28,917
$
23,604 
Share issue proceeds
 
 
 
(76)
 
6,654 
Contributed surplus change
 
 
 
86
 
74 
Share-based payment reserve change
 
 
 
173
 
477 
Net loss
 
 
 
(1,277)
 
(1,892) 
Net assets of GoviEx–end of period-USD
 
 
$
27,823
$
28,917 
Denison ownership interest
 
 
 
16.20%
 
16.21% 
Denison share of net assets of GoviEx
 
 
 
4,507
 
4,687 
Other adjustments
 
 
 
(311)
 
(283) 
Investment in GoviEx–USD
 
 
 
4,196
 
4,404 
At historical exchange rate
 
 
 
1.2645
 
1.2675 
Investment in GoviEx–CAD
 
 
$
5,305
$
5,582 
 
 
10.
RESTRICTED CASH AND INVESTMENTS
 
The restricted cash and investments balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
3,417
$
85 
Investments
 
 
 
9,135
 
12,170 
 
 
 
$
12,552
$
12,255 
 
 
 
 
 
 
 
Restricted cash and investments-by item:
 
 
 
 
 
 
Elliot Lake reclamation trust fund
 
 
$
3,417
$
3,120 
Letters of credit facility pledged assets
 
 
 
9,000
 
9,000 
Letters of credit additional collateral
 
 
 
135
 
135 
 
 
 
$
12,552
$
12,255 
 
At March 31, 2019, investments consist of guaranteed investment certificates with maturities of more than 90 days.
 
Elliot Lake Reclamation Trust Fund
 
During the three months ended March 31, 2019, the Company deposited an additional $453,000 into the Elliot Lake Reclamation Trust Fund and withdrew $175,000.
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Letters of Credit Facility Pledged Assets
 
As at March 31, 2019, the Company had on deposit $9,000,000 with the Bank of Nova Scotia (“BNS”) as pledged restricted cash and investments pursuant to its obligations under an amended and extended letters of credit facility (see notes 14 and 15).
 
Letters of Credit Additional Collateral
 
As at March 31, 2019, the Company had on deposit an additional $135,000 of cash collateral with BNS in respect of the portion of its issued reclamation letters of credit in excess of the collateral available under its letters of credit facility (see notes 14 and 15).
 
 
11.
PROPERTY, PLANT AND EQUIPMENT
 
The property, plant and equipment (“PP&E”) continuity summary is as follows:
 
 
 
Plant and Equipment
 
Mineral
 
Total
(in thousands of CAD dollars)
 
Owned
 
Right-of-Use
 
Properties
 
PP&E
 
 
 
 
 
 
 
 
 
Cost:
 
 
 
 
 
 
 
 
Balance – December 31, 2018
$
103,430
$
-
$
178,947
$
282,377
Adoption of IFRS 16 (note 4)
 
-
 
944
 
-
 
944
Additions
 
8
 
38
 
13
 
59
Balance – March 31, 2019
$
103,438
$
982
$
178,960
$
283,380
 
 
 
 
 
 
 
 
 
Accumulated amortization, depreciation:
 
 
 
 
 
 
 
 
Balance – December 31, 2018
$
(24,086)
$
-
$
-
$
(24,086)
Amortization
 
(53)
 
-
 
-
 
(53)
Depreciation
 
(942)
 
(58)
 
-
 
(1,000)
Balance – March 31, 2019
$
(25,081)
$
(58)
$
-
$
(25,139)
 
 
 
 
 
 
 
 
 
Carrying value:
 
 
 
 
 
 
 
 
Balance – December 31, 2018
$
79,344
$
-
$
178,947
$
258,291
Balance – March 31, 2019
$
78,357
$
924
$
178,960
$
258,241
 
Plant and Equipment – Owned
 
The Company has a 22.50% interest in the McClean Lake mill through its ownership interest in the MLJV. The carrying value of the mill, comprised of various infrastructure, building and machinery assets, represents $70,477,000, or 89.9%, of the March 2019 total carrying value amount.
 
Plant and Equipment – Right-of-Use
 
In conjunction with the adoption of IFRS 16, the Company has included the cost of various right-of-use (“ROU”) assets within its PP&E carrying value amount. These assets consist of building, vehicle and office equipment leases. The majority of the value is attributable to the building lease assets which represent the Company’s office and / or warehousing space located in Toronto, Saskatoon and Sudbury.
 
Mineral Properties
 
As at March 31, 2019, the Company has various interests in development, evaluation and exploration projects located in Canada which are either held directly or through option or various contractual agreements. The properties with significant carrying values, being Wheeler River, Waterbury Lake, Midwest, Mann Lake, Wolly, Johnston Lake and McClean Lake, represent $161,883,000, or 90.5%, of the March 2019 total mineral property carrying amount. Significant updates from the December 31, 2018 year-end are listed below.
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Hook Carter
 
In November 2016, Denison completed the purchase of an 80% interest in the Hook-Carter property from ALX Uranium Corp (“ALX”). Under terms in the agreement, Denison has agreed to provide ALX with a carried interest on the first $12,000,000 in expenditures. As at March 31, 2019, the Company has spent $6,564,000 on the project, since acquisition.
 
 
12. DEFERRED REVENUE
 
The deferred revenue balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Deferred revenue – CLJV toll milling – APG
 
 
$
37,264 
$
37,727
 
 
 
$
37,264 
   $
37,727
 
 
 
 
 
 
 
Deferred revenue-by balance sheet presentation:
 
 
 
 
 
 
Current
 
 
$
4,580 
$
4,567
Non-current
 
 
 
32,684
 
33,160
 
 
 
$
37,264 
$
37,727
 
The deferred revenue liability continuity summary is as follows:
 
 
 
(in thousands of CAD dollars)
 
 
 
 
 
Three Months
Ended March
31, 2019
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
$
37,727
Revenue recognized during the period
 
 
 
 
 
(1,263)
Accretion
 
 
 
 
 
800 
Balance-end of period
 
 
 
 
$
37,264 
 
Arrangement with Anglo Pacific Group (“APG”) PLC
 
In February 2017, Denison closed an arrangement with APG under which Denison received an upfront payment in exchange for its right to receive specified future toll milling cash receipts from the MLJV under the current toll milling agreement with the CLJV from July 1, 2016 onwards. The APG Arrangement represents a contractual obligation of Denison to pay onward to APG any cash proceeds of future toll milling revenue earned by the Company related to the processing of specified Cigar Lake ore through the McClean Lake mill.
 
In the three months ended March 31, 2019, the Company has recognized $1,263,000 of toll milling revenue from the draw-down of deferred revenue, based on Cigar Lake toll milling production of 4,863,000 pounds U308 (100% basis). The drawdown for the three months includes a retroactive $26,000 increase in revenue resulting from changes in estimates to the toll milling drawdown rate in the first quarter of 2019.
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
13. POST-EMPLOYMENT BENEFITS
 
The post-employment benefits balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Accrued benefit obligation
 
 
$
2,273
$
2,295
 
 
 
$
2,273
$
2,295
 
 
 
 
 
 
 
Post-employment benefits-by balance sheet presentation:
 
 
 
 
Current
 
 
$
150
$
150
Non-current
 
 
 
2,123
 
2,145
 
 
 
$
2,273
$
2,295
 
The post-employment benefits continuity summary is as follows:
 
 
 
(in thousands of CAD dollars)
 
 
 
 
 
Three Months
Ended March
31, 2019
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
$
2,295
Accretion
 
 
 
 
 
17 
Benefits paid
 
 
 
 
 
(39)
Balance-end of period
 
 
 
 
$
2,273
 
 
14. RECLAMATION OBLIGATIONS
 
The reclamation obligations balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Reclamation obligations-by location:
 
 
 
 
 
 
Elliot Lake
 
 
$
17,233
$
17,205
McClean and Midwest Joint Ventures
 
 
 
12,968
 
12,837
Other
 
 
 
22
 
22
 
 
 
$
30,223
$
30,064 
 
 
 
 
 
 
 
Reclamation obligations-by balance sheet presentation:
 
 
 
 
Current
 
 
$
863 
$
877
Non-current
 
 
 
29,360
 
29,187 
 
 
 
$
30,223
$
30,064 
 
The reclamation obligations continuity summary is as follows:
 
 
 
(in thousands of CAD dollars)
 
 
 
 
 
Three Months
Ended March
31, 2019
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
$
30,064 
Accretion
 
 
 
 
 
340  
Expenditures incurred
 
 
 
 
 
(181) 
Balance-end of period
 
 
 
 
$
30,223 
 
Site Restoration: Elliot Lake
 
Spending on restoration activities at the Elliot Lake site is funded from monies in the Elliot Lake Reclamation Trust fund (see note 10).
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Site Restoration: McClean Lake Joint Venture and Midwest Joint Venture
 
Under the Mineral Industry Environmental Protection Regulations (1996), the Company is required to provide its pro-rata share of financial assurances to the province of Saskatchewan relating to future decommissioning and reclamation plans that have been filed and approved by the applicable regulatory authorities. As at March 31, 2019, the Company has provided irrevocable standby letters of credit, from a chartered bank, in favour of the Saskatchewan Ministry of Environment, totalling $24,135,000 which relate to the most recently filed reclamation plan dated March 2016.
 
 
15. OTHER LIABILITIES
 
The other liabilities balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Debt obligations:
 
 
 
 
 
 
Lease liabilities
 
 
$
934
$
-
Flow-through share premium obligation (note 16)
 
 
 
-
 
1,337
 
 
 
$
934
$
1,337
 
 
 
 
 
 
 
Other long-term liabilities-by balance sheet presentation:
 
 
 
 
Current
 
 
$
280
$
1,337
Non-current
 
 
 
654
 
-
 
 
 
$
934
$
1,337
 
Letters of Credit Facility
 
In January 2019, the Company entered into an amending agreement for its letters of credit facility with BNS (the “2019 facility”). Under the amendment, the maturity date of the 2019 facility has been extended to January 31, 2020. All other terms of the 2019 facility (tangible net worth covenant, pledged cash, investment amounts and security for the facility) remain unchanged from those of the 2018 facility. The 2019 facility continues to provide the Company with access to credit up to $24,000,000 (the use of which is restricted to non-financial letters of credit in support of reclamation obligations) subject to letter of credit and standby fees of 2.40% (0.40% on the first $9,000,000) and 0.75% respectively.
 
At March 31, 2019, the Company is in compliance with its facility covenants and $24,000,000 (December 31, 2018: $24,000,000) of the facility is being utilized as collateral for letters of credit issued in respect of the reclamation obligations for the MLJV and MWJV. During the three months ended March 31, 2019, the Company incurred letter of credit fees of $98,000.
 
Debt Obligations
 
At March 31, 2019, the Company’s debt obligations are comprised entirely of lease liabilities associated with the new accounting required under IFRS 16. The lease liabilities continuity summary is as follows:
 
 
 
(in thousands of CAD dollars)
 
 
 
 
 
Three Months
Ended March
31, 2019
 
 
 
 
 
 
 
Balance-beginning of period
 
 
 
 
$
-
Adoption of IFRS 16 (note 4)
 
 
 
 
 
944 
Accretion
 
 
 
 
 
20 
Additions
 
 
 
 
 
38 
Repayments
 
 
 
 
 
(68) 
Balance-end of period
 
 
 
 
$
934 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Debt Obligations – Scheduled Maturities
 
The following table outlines the Company’s scheduled maturities of its debt obligations as at March 31, 2019:
 
 
(in thousands of CAD dollars)
 
 
 
 
 
Lease
Liabilities
 
 
 
 
 
 
 
Maturity analysis – contractual undiscounted cash flows:
 
 
 
 
Next 12 months
 
 
 
 
$
280
One to five years
 
 
 
 
 
698 
More than five years
 
 
 
 
 
173 
Total obligation – end of period – undiscounted
 
 
 
 
 
1,151 
Present value discount adjustment
 
 
 
 
 
(217) 
Total obligation – end of period - discounted
 
 
 
 
$
934 
 
 
16. SHARE CAPITAL
 
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 of CAD dollars except share amounts)
Shares
 
 
 
 
 
 
Balance-December 31, 2018
589,175,086
  $
1,331,214
 
 
 
 
Share cancellations
(46,178)
 
-
 
(46,178)
 
-
Balance-March 31, 2019
589,128,908
$
1,331,214
 
Share Cancellations
 
In February 2019, 46,178 shares were cancelled in connection with the January 2013 acquisition of JNR Resources Inc (“JNR”). JNR shareholders were entitled to exchange their JNR shares for shares of Denison in accordance with the share exchange ratio established for the acquisition. In January 2019, this right expired and the un-exchanged shares for which shareholders had not elected to exercise their exchange rights were subsequently cancelled.
 
Flow-Through Share Issues
 
The Company finances a portion of its exploration programs through the use of flow-through share issuances. Canadian income tax deductions relating to these expenditures are claimable by the investors and not by the Company.
 
As at March 31, 2019, the Company estimates that it has incurred $3,965,000 of its obligation to spend $5,000,000 on eligible exploration expenditures as a result of the issuance of flow-through shares in November 2018. The Company renounced the income tax benefits of this issue in February 2019, with an effective date of renunciation to its subscribers of December 31, 2018. In conjunction with the renunciation, the flow-through share premium liability at December 31, 2018 has been extinguished and a deferred tax recovery has been recognized in the first quarter of 2019 (see notes 15 and 23).
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
17. SHARE PURCHASE WARRANTS
 
A continuity summary of the issued and outstanding share purchase warrants in terms of common shares of the Company and the associated dollar amounts is presented below:
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
Average
 
Number of
 
 
 
 
 
 
Exercise
 
Common
 
Fair
 
 
 
 
Price Per
 
Shares
 
Value
(in thousands of CAD dollars except share amounts)
 
Share (CAD)
 
Issuable
 
Amount
 
 
 
 
 
 
 
 
 
Balance-December 31, 2018 and March 31, 2019
$
1.27
 
1,673,077
$
435
 
The warrants noted above were issued in February 2017 and expire on February 14, 2020.
 
 
18. SHARE-BASED COMPENSATION
 
The Company’s share based compensation arrangements include stock options, restricted share units (“RSUs”) and performance share units (“PSUs”).
 
A summary of share based compensation expense recognized in the statement of income (loss) is as follows:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Share based compensation expense for:
 
 
 
 
 
 
 
 
Stock options
 
 
 
 
$
(270)
$
(363)
RSUs
 
 
 
 
 
(181)
 
-
PSUs
 
 
 
 
 
(152)
 
-
Share based compensation expense
 
 
 
 
$
(603)
$
(363)
 
As at March 31, 2019, an additional $3,042,000 in share-based compensation expense remains to be recognized up until April 2023.
 
Stock Options
 
A continuity summary of the stock options granted under the Company’s stock-based compensation plan is presented below:
 
 
 
 
 
 
 
 
 
 
Weighted-
 
 
 
 
 
 
 
 
 
Average
 
 
 
 
 
 
 
 
 
Exercise
 
 
 
 
 
 
 
Number of
 
Price per
 
 
 
 
 
 
 
Common
 
Share
 
 
 
 
 
 
 
Shares
 
(CAD)
 
 
 
 
 
 
 
 
 
 
Stock options outstanding – December 31, 2018
 
 
 
13,865,193
$
0.83
Granted
 
 
 
 
 
 
2,691,000
 
0.68
Expiries
 
 
 
 
 
 
(855,000)
 
1.82
Forfeitures
 
 
 
 
 
 
(58,500)
 
0.64
Stock options outstanding – March 31, 2019
 
 
 
15,642,693
$
0.75
Stock options exercisable – March 31, 2019
 
 
 
11,195,921
$
0.80
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
A summary of the Company’s stock options outstanding at March 31, 2019 is presented below:
 
 
 
 
 
 
Weighted
 
 
 
Weighted-
 
 
 
 
 
Average
 
 
 
Average
 
 
 
 
 
Remaining
 
 
 
Exercise
Range of Exercise
 
 
 
 
Contractual
 
Number of
 
Price per
Prices per Share
 
 
 
 
Life
 
Common
 
Share
(CAD)
 
 
 
 
(Years)
 
Shares
 
(CAD)
 
 
 
 
 
 
 
 
 
 
Stock options outstanding
 
 
 
 
 
 
$ 0.50 to $ 0.74
 
3.72
 
8,262,293
$
0.63
$ 0.75 to $ 0.99
 
 
 
 
2.95
 
6,167,400
 
0.85
$ 1.00 to $ 1.39
 
 
 
 
0.94
 
1,213,000
 
1.09
Stock options outstanding - end of period
 
 
 
3.20
 
15,642,693
$
0.75
 
Options outstanding at March 31, 2019 expire between May 2019 and March 2024.
 
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 assumptions used in the model to determine the fair value of options granted:
 
 
 
 
 
Three Months Ended
 
 
 
 
March 31, 2019
 
 
 
 
 
Risk-free interest rate
 
 
 
1.65%
Expected stock price volatility
 
 
 
49.46%
Expected life
 
 
 
3.5 years
Expected dividend yield
 
 
 
-
Fair value per share under options granted
 
 
CAD$0.26
 
Share Units
 
The Company has a share unit plan which provides for the granting of share unit awards to directors, officers and employees of the Company. Under the plan, all share unit grants, vesting periods and performance conditions therein are approved by the Company’s board of directors. Share unit grants are either in the form of RSUs or PSUs. RSUs granted in 2018 and 2019 to-date, vest ratably over a period of three years. PSUs granted in 2018 vest ratably over a period of five years, based upon the achievement of the performance vesting conditions – no PSUs had been granted in 2019 as at March 31, 2019.
 
A continuity summary of the RSUs and PSUs of the Company granted under the share unit plan is presented below:
 
 
 
RSUs
 
PSUs
 
 
 
 
Weighted
 
 
 
Weighted
 
 
 
 
Average
 
 
 
Average
 
 
Number of
 
Fair Value
 
Number of
 
Fair Value
 
 
Common
 
Per RSU
 
Common
 
Per PSU
 
 
Shares
 
(CAD)
 
Shares
 
(CAD)
 
 
 
 
 
 
 
 
 
Units outstanding – December 31, 2018
 
1,200,432
$
0.65
 
2,200,000
$
0.65
Granted
 
1,914,000
 
0.73
 
-
 
-
Units outstanding – March 31, 2019
 
3,114,432
$
0.70
 
2,200,000
$
0.65
Units vested – March 31, 2019
 
-
$
-
 
-
$
-
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The accumulated other comprehensive income (loss) balance consists of:
 
 
 
 
 
At March 31
 
At December 31
(in thousands of CAD dollars)
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Cumulative foreign currency translation
 
 
$
406
$
403
Unamortized experience gain-post employment liability
 
 
 
 
Gross
 
 
 
983
 
983
Tax effect
 
 
 
(259)
 
(259)
 
 
 
$
1,130
$
1,127
 
 
20. SUPPLEMENTAL FINANCIAL INFORMATION
 
The components of operating expenses are as follows:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Cost of goods and services sold:
 
 
 
 
 
 
 
 
Operating overheads:
 
 
 
 
 
 
 
 
Mining, other development expense
 
 
 
 
$
(308)
$
(571)
Milling, conversion expense
 
 
 
 
 
(862)
 
(839)
Less absorption:
 
 
 
 
 
 
 
 
-Mineral properties
 
 
 
 
 
13
 
15
Cost of services
 
 
 
 
 
(2,052)
 
(2,151)
Cost of goods and services sold
 
 
 
 
 
(3,209)
 
(3,546)
Reclamation asset amortization
 
 
 
 
 
(53)
 
(47)
Operating expenses
 
 
 
 
$
(3,262)
$
(3,593)
 
The components of other income (expense) are as follows:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Gains (losses) on:
 
 
 
 
 
 
 
 
Foreign exchange
 
 
 
 
$
-
$
(3)
Disposal of property, plant and equipment
 
 
 
 
 
-
 
36
Investment fair value through profit (loss)
 
 
 
 
 
(238)
 
(3,405)
Other
 
 
 
 
 
(115)
 
(84)
Other income (expense)
 
 
 
 
$
(353)
$
(3,456)
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The components of finance income (expense) are as follows:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Interest income
 
 
 
 
$
169
$
465
Interest expense
 
 
 
 
 
(2)
 
-
Accretion expense
 
 
 
 
 
 
 
 
Deferred revenue (note 12)
 
 
 
 
 
(800)
 
(829)
Post-employment benefits (note 13)
 
 
 
 
 
(17)
 
(18)
Reclamation obligations (note 14)
 
 
 
 
 
(340)
 
(329)
Debt obligations (note 15)
 
 
 
 
 
(20)
 
-
Finance income (expense)
 
 
 
 
$
(1,010)
$
(711)
 
A summary of depreciation expense recognized in the statement of income (loss) is as follows:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
Mining, other development expense
 
 
 
 
$
(1)
$
(1)
Milling, conversion expense
 
 
 
 
 
(855)
 
(839)
Cost of services
 
 
 
 
 
(60)
 
(68)
Exploration and evaluation
 
 
 
 
 
(53)
 
(30)
General and administrative
 
 
 
 
 
(31)
 
(11)
Depreciation expense-gross
 
 
 
 
$
(1,000)
$
(949)
 
A summary of employee benefits expense recognized in the statement of income (loss) is as follows:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Salaries and short-term employee benefits
 
 
 
 
$
(2,572)
$
(2,349)
Share-based compensation
 
 
 
 
 
(603)
 
(363)
Termination benefits
 
 
 
 
 
-
 
(16)
Employee benefits expense
 
 
 
 
$
(3,175)
$
(2,728)
 
The change in non-cash working capital items in the consolidated statements of cash flows is as follows:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Change in non-cash working capital items:
 
 
 
 
 
 
 
 
Trade and other receivables
 
 
 
 
$
(85)
$
66
Inventories
 
 
 
 
 
64
 
215
Prepaid expenses and other assets
 
 
 
 
 
205
 
161
Accounts payable and accrued liabilities
 
 
 
 
 
1,787
 
2,202
Change in non-cash working capital items
 
 
 
 
$
1,971
$
2,644
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
21. SEGMENTED INFORMATION
 
Business Segments
 
The Company operates in three primary segments – the Mining segment, the Environmental Services segment and the Corporate and Other segment. The Mining segment includes activities related to exploration, evaluation and development, mining, milling (including toll milling) and the sale of mineral concentrates. The Environmental Services segment includes the results of the Company’s environmental services business, DES. The Corporate and Other segment includes management fee income earned from UPC and general corporate expenses not allocated to the other segments. Management fee income from UPC has been included with general corporate expenses due to the shared infrastructure between the two activities.
 
For the three months ended March 31, 2019, reportable segment results were as follows:
 
 
(in thousands of CAD dollars)
 
 
 
Mining
 
DES
Corporate
and Other
 
Total
 
 
 
 
 
 
 
Statement of Operations:
 
 
 
 
 
 
Revenues
 
 
1,263
2,237
476
3,976
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
 
(1,210)
(2,052)
-
(3,262)
Exploration and evaluation
 
 
(4,229)
-
-
(4,229)
General and administrative
 
 
-
-
(2,366)
(2,366)
 
 
 
(5,439)
(2,052)
(2,366)
(9,857)
Segment income (loss)
 
 
(4,176)
185
(1,890)
(5,881)
 
 
 
 
 
 
 
Revenues – supplemental:
 
 
 
 
 
 
Environmental services
 
 
-
2,237
-
2,237
Management fees
 
 
-
-
476
476
Toll milling services–deferred revenue
 
 
1,263
-
-
1,263
 
 
 
1,263
2,237
476
3,976
 
 
 
 
 
 
 
Capital additions:
 
 
 
 
 
 
Property, plant and equipment
 
 
13
8
38
59
 
 
 
 
 
 
 
Long-lived assets:
 
 
 
 
 
 
Plant and equipment
 
 
 
 
 
 
Cost
 
 
99,028
4,484
908
104,420
Accumulated depreciation
 
 
(21,944)
(2,987)
(208)
(25,139)
Mineral properties
 
 
178,960
-
-
178,960
 
 
 
256,044
1,497
700
258,241
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
For the three months ended March 31, 2018, reportable segment results were as follows:
 
 
(in thousands of CAD dollars)
 
 
 
Mining
 
DES
Corporate
and Other
 
Total
 
 
 
 
 
 
 
Statement of Operations:
 
 
 
 
 
 
Revenues
 
 
780
2,378
415
3,573
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
 
(1,442)
(2,024)
(127)
(3,593)
Exploration and evaluation
 
 
(6,254)
-
-
(6,254)
General and administrative
 
 
-
-
(1,832)
(1,832)
Impairment reversal
 
 
11
-
-
11
 
 
 
(7,685)
(2,024)
(1,959)
(11,668)
Segment income (loss)
 
 
(6,905)
354
(1,544)
(8,095)
 
 
 
 
 
 
 
Revenues – supplemental:
 
 
 
 
 
 
Environmental services
 
 
-
2,378
-
2,378
Management fees
 
 
-
-
415
415
Toll milling services–deferred revenue
 
 
780
-
-
780
 
 
 
780
2,378
415
3,573
 
 
 
 
 
 
 
Capital additions:
 
 
 
 
 
 
Property, plant and equipment
 
 
83
-
-
83
 
 
 
 
 
 
 
Long-lived assets:
 
 
 
 
 
 
Plant and equipment
 
 
 
 
 
 
Cost
 
 
98,573
4,303
294
103,170
Accumulated depreciation
 
 
(18,516)
(2,762)
(151)
(21,429)
Mineral properties
 
 
166,347
-
-
166,347
 
 
 
246,404
1,541
143
248,088
 
 
22. RELATED PARTY TRANSACTIONS
 
Uranium Participation Corporation
 
The previous management services agreement with UPC expired on March 31, 2019. Effective April 1, 2019, a new management services agreement (“MSA”) was entered into for a term of five years (the “Term”). Under the MSA, Denison continues to receive the following management fees from UPC, unchanged from the previous agreement: a) a base fee of $400,000 per annum, payable in equal quarterly installments; b) a variable fee equal to (i) 0.3% per annum of UPC’s total assets in excess of $100 million and up to and including $500 million, and (ii) 0.2% per annum of UPC’s total assets in excess of $500 million; c) a fee, at the discretion of the Board, for on-going monitoring or work associated with a transaction or arrangement (other than a financing, or the acquisition of or sale of U3O8 or UF6); and d) a commission of 1.0% of the gross value of any purchases or sales of U3O8 or UF6 or gross interest fees payable to UPC in connection with any uranium loan arrangements.
 
The MSA may be terminated during the Term by Denison upon the provision of 180 days written notice. The MSA may be terminated during the Term by UPC (i) in the event of a material breach, (ii) within 90 days of certain events surrounding a change of both of the individuals serving as Chief Executive Officer and Chief Financial Officer of UPC, and / or a change of control of Denison, or (iii) upon the provision of 30 days written notice and, subject to certain exceptions, a cash payment to Denison of an amount equal to the base and variable management fees that would otherwise be payable to Denison (calculated based on UPC’s current uranium holdings at the time of termination) for the lesser period of a) three years, or b) the remaining term of the MSA.
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following transactions were incurred with UPC for the periods noted:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Management fees:
 
 
 
 
 
 
 
 
Base and variable fees
 
 
 
 
$
474
$
371
Commission fees
 
 
 
 
 
2
 
44
 
 
 
 
 
$
476
$
415
 
At March 31, 2019, accounts receivable includes $257,000 (December 31, 2018: $303,000) due from UPC with respect to the fees indicated above.
 
Korea Electric Power Corporation (“KEPCO”) and Korea Hydro & Nuclear Power (“KHNP”)
 
As at March 31, 2019, KHNP, through its subsidiaries, holds 58,284,000 shares of Denison representing a share interest of approximately 9.89%. KHNP Canada Energy Ltd., a subsidiary of KEPCO’s subsidiary KHNP, is the holder of the majority of Denison’s shares and is also the majority member of Korea Waterbury Uranium Limited Partnership (“KWULP”). KWULP is a consortium of investors that holds the non-Denison owned interests in Waterbury Lake Uranium Corporation (“WLUC”) and Waterbury Lake Uranium Limited Partnership (“WLULP”), entities whose key asset is the Waterbury Lake property.
 
Other
 
At March 31, 2019, the Company had an outstanding loan receivable amount of $250,000 with GoviEx related to a credit agreement between the parties (see note 6). The loan was unsecured and bore interest at 7.5% per annum. In April 2019, the loan was repaid in full, together with interest thereon.
 
During the three months ended March 31, 2019, the Company incurred investor relations, administrative service fees and other expenses of $21,000 (March 31, 2018: $66,000) with Namdo Management Services Ltd, which shares a common director with Denison. These services were incurred in the normal course of operating a public company. At March 31, 2019, an amount of $nil (December 31, 2018: $nil) was due to this company.
 
Compensation of Key Management Personnel
 
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers, vice-presidents and members of its Board of Directors.
 
The following compensation was awarded to key management personnel:
 
 
 
 
 
Three Months Ended
March 31
(in thousands of CAD dollars)
 
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Salaries and short-term employee benefits
 
 
 
 
$
(705)
$
(507)
Share-based compensation
 
 
 
 
 
(504)
 
(309)
Key management personnel compensation
 
 
 
 
$
(1,209)
$
(816)
 
 
23. INCOME TAXES
 
For the three months ended March 31, 2019, Denison has recognized deferred tax recoveries of $2,186,000. The deferred tax recovery includes the recognition of previously unrecognized Canadian tax assets of $1,337,000 relating to the February 2019 renunciation of the tax benefits associated with the Company’s $5,000,000 flow-through share issue in November 2018.
 
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
24. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
IFRS 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 share and warrant equity instruments, is based on quoted market prices at the balance sheet date. The quoted market price used to value financial assets held by the Company is the current closing price. Warrants that do not trade in active markets have been valued using the Black-Scholes pricing model. Debt instruments have been valued using the effective interest rate for the period that the Company expects to hold the instrument and not the rate to maturity.
 
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 March 31, 2019 and December 31, 2018:
 
 
 
 
 
 
 
March 31
 
December 31,
 
 
Financial
 
Fair
 
2019
 
2018
 
 
Instrument
 
Value
 
Fair
 
Fair
(in thousands of CAD dollars)
 
Category(1)
 
Hierarchy
 
Value
 
Value
 
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
Cash and equivalents
 
Category B
 
 
$
19,027
$
23,207
Trade and other receivables
 
Category B
 
 
 
4,157
 
4,072
Investments
 
 
 
 
 
 
 
 
Equity instruments-shares
 
Category A
 
Level 1
 
2,019
 
2,007
Equity instruments-warrants
 
Category A
 
Level 2
 
113
 
248
Restricted cash and equivalents
 
 
 
 
 
 
 
 
Elliot Lake reclamation trust fund
 
Category B
 
 
 
3,417
 
3,120
Credit facility pledged assets
 
Category B
 
 
 
9,000
 
9,000
Reclamation letter of credit collateral
 
Category B
 
 
 
135
 
135
 
 
 
 
 
$
37,868
$
41,789
 
 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
Category C
 
 
 
7,338
 
5,554
Debt obligations
 
Category C
 
 
 
934
 
-
 
 
 
 
 
$
8,272
$
5,554
 
(1)
Financial instrument designations are as follows: Category A=Financial assets and liabilities at fair value through profit and loss; Category B=Financial assets at amortized cost; and Category C=Financial liabilities at amortized cost.
 
 
25. CONTINGENCIES
 
Specific Legal Matters
 
Mongolia Mining Division Sale – Arbitration Proceedings with Uranium Industry
 
In November 2015, the Company sold all of its mining assets and operations located in Mongolia to Uranium Industry a.s (“UI”) pursuant to an amended and restated share purchase agreement (the “GSJV Agreement”). The primary assets at that time were the exploration licenses for the Hairhan, Haraat, Gurvan Saihan and Ulzit projects. As consideration for the sale per the GSJV Agreement, the Company received cash consideration of USD$1,250,000 prior to closing and the rights to receive additional contingent consideration of up to USD$12,000,000.
 

 
 
 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
On September 20, 2016, the Mineral Resources Authority of Mongolia (“MRAM”) formally issued mining license certificates for all four projects, triggering Denison’s right to receive contingent consideration of USD$10,000,000 (collectively, the “Mining License Receivable”). The original due date for payment of the Mining License Receivable by UI was November 16, 2016.
 
Under an extension agreement between UI and the Company, the payment due date of the Mining License Receivable was extended from November 16, 2016 to July 16, 2017 (the “Extension Agreement”). As consideration for the extension, UI agreed to pay interest on the Mining License Receivable amount at a rate of 5% per year, payable monthly up to July 16, 2017 and they also agreed to pay a USD$100,000 instalment amount towards the balance of the Mining License Receivable amount. The required payments were not made.
 
On February 24, 2017, the Company served notice to UI that it was in default of its obligations under the GSJV Agreement and the Extension Agreement and that the Mining License Receivable and all interest payable thereon are immediately due and payable.
 
On December 12, 2017, the Company filed a Request for Arbitration between the Company and UI under the Arbitration Rules of the London Court of International Arbitration in conjunction with the default of UI’s obligations under the GSJV and Extension agreements. The three person arbitration panel was appointed on February 28, 2018, and formal submissions have been made by each party. As of the date hereof, arbitration proceedings are continuing with hearings scheduled for Q4 2019.
 
 
EX-99.2 3 a2019-03dmcmdafiling.htm MANAGEMENTS' DISCUSSION & ANALYSIS DATED MAY 1, 2019 Blueprint
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS ENDED
MARCH 31, 2019
 
 
 
  
 
 TABLE OF CONTENTS
 
 2019 FIRST QUARTER PERFORMANCE HIGHLIGHTS
 2
 ABOUT DENISON
 2
 RESULTS OF OPERATIONS
 3
        Wheeler River Project
 6
        Exploration Pipeline Properties
 10
 LIQUIDITY AND CAPITAL RESOURCES
 15
 OUTLOOK FOR 2019
 17
 ADDITIONAL INFORMATION
 17
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 18
 
 
 

 
 
 
This Management’s Discussion and Analysis (‘MD&A’) of Denison Mines Corp. and its subsidiary companies and joint arrangements (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 May 1, 2019 and should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and related notes for the three months ended March 31, 2019. The unaudited interim condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’). Readers are also encouraged to consult the audited consolidated financial statements and MD&A for the year ended December 31, 2018. All dollar amounts in this MD&A are expressed in Canadian dollars, unless otherwise noted.
 
Additional information about Denison, including the Company’s press releases, quarterly and annual reports, Annual Information Form and Form 40-F is available through the Company’s filings with the securities regulatory authorities in Canada at www.sedar.com (‘SEDAR’) and the United States at www.sec.gov/edgar.shtml (‘EDGAR’).
 
 
 
    
 MANAGEMENT’S DISCUSSION & ANALYSIS
 
 
2019 FIRST QUARTER PERFORMANCE HIGHLIGHTS
 
Execution of activities to advance the Wheeler River Project
 
During the first quarter of 2019, the Company executed on its decision to advance the Wheeler River Project (‘Wheeler River’) following the release of the project’s Pre-Feasibility Study (‘PFS’) in 2018. Activities in the quarter include the submission of the Project Description (‘PD’) to the Canadian Nuclear Safety Commission (‘CNSC’) and a Technical Proposal to the Saskatchewan Ministry of Environment – acceptance of which are required to officially initiate the Environmental Assessment (‘EA’) process. In addition, engineering activities continue in regards to the proposed Phoenix In-Situ Recovery (‘ISR’) project – including the advancement of the ISR field test planned for the summer of 2019, as well as certain other studies designed to support the future Feasibility Study (‘FS’).
 
Successful completion of winter exploration drilling programs
 
At Wheeler River, the Company discovered unconformity-hosted uranium mineralization along the southern portion of the K West trend, including 0.08% eU3O8 over 1.3 metres in drill hole WR-756, accompanied by strong sulphide mineralization and other geological features commonly associated with unconformity-related uranium deposits. Follow up of the result in drill hole WR-756 is warranted, particularly given the wide spacing of reconnaissance drill holes completed on this portion of the K West trend – roughly 600 metre spacing of drill holes along strike.
 
At Waterbury Lake, follow-up drilling completed at the GB Zone intersected basement-hosted mineralization in multiple drill holes, including 0.15% U3O8 over 6.0 metres in drill hole WAT19-480, and 0.25% U3O8 over 2.0 metres and 0.22% U3O8 over 1.5 metres in drill hole WAT19-486.
 
Renewal of Management Services Agreement with Uranium Participation Corp.
 
The Company, through its subsidiary, Denison Mines Inc., has entered into a new five year agreement to provide management services to Uranium Participation Corp. (‘UPC’). The Company’s 2019 Outlook includes $1,920,000 in estimated management fees from UPC, based on a uranium price of US$28.75 per pound U3O8, and excludes any additional fees that may become payable to Denison as a result of future uranium purchases or sales. Based on the fees estimated for 2019, the new agreement has the potential to generate over $9,000,000 in management fees to Denison over the five year term.
 
ABOUT DENISON
 
Denison Mines Corp. was formed under the laws of Ontario and is a reporting issuer in all Canadian provinces. Denison’s common shares are listed on the Toronto Stock Exchange (the ‘TSX’) under the symbol ‘DML’ and on the NYSE American exchange under the symbol ‘DNN’.
 
Denison is a uranium exploration and development company with interests focused in the Athabasca Basin region of northern Saskatchewan, Canada. In addition to its 90% owned Wheeler River project, which hosts the high grade Phoenix and Gryphon uranium deposits, Denison's exploration portfolio consists of numerous projects covering approximately 310,000 hectares in the Athabasca Basin region. Denison's interests in Saskatchewan also include a 22.5% ownership interest in the McClean Lake Joint Venture (‘MLJV’), which includes several uranium deposits and the McClean Lake uranium mill, which is currently processing ore from the Cigar Lake mine under a toll milling agreement, plus a 25.17% interest in the Midwest deposits and a 65.92% interest in the J Zone and Huskie deposits on the Waterbury Lake property. The Midwest, J Zone and Huskie deposits are located within 20 kilometres of the McClean Lake mill.
 
Denison is engaged in mine decommissioning and environmental services through its Denison Environmental Services (‘DES’) division, which manages Denison’s Elliot Lake reclamation projects and provides post-closure mine and maintenance services as well as environmental consulting services to a variety of industry and government clients.
 
Denison is also the manager of UPC, a publicly traded company listed on the TSX under the symbol ‘U’, which invests in uranium oxide in concentrates (‘U3O8’) and uranium hexafluoride (‘UF6’).
 
 
 
 
    
 MANAGEMENT’S DISCUSSION & ANALYSIS
 
 
SELECTED ANNUAL FINANCIAL INFORMATION
(in thousands)
 
As at
March 31,
2019
 
As at
December 31,
2018
 
 
 
 
 
Financial Position:
 
 
 
 
Cash and cash equivalents
$
19,027
$
23,207
 
 
 
 
 
Working capital
$
14,125
$
19,221
Property, plant and equipment
$
258,241
$
258,291
Total assets
$
307,664
$
312,187
Total long-term liabilities(1)
$
76,935
$
77,455
 
(1)
Predominantly comprised of the non-current portion of deferred revenue, non-current reclamation obligations, and deferred income tax liabilities.
 
 
SELECTED QUARTERLY FINANCIAL INFORMATION
 
 
 
 
 
2019
 
2018
 
2018
 
2018
(in thousands, except for per share amounts)
 
Q1
 
Q4
 
Q3
 
Q2
 
 
 
 
 
 
 
 
 
 
 
Continuing Operations:
 
 
 
 
 
 
 
 
Total revenues
$
3,976
  $
4,144
$
3,729
$
4,104
Net loss
$
(5,335)
  $
(13,642)
$
(3,884)
$
(5,583)
Basic and diluted loss per share
$
(0.01)
  $
(0.02)
$
(0.01)
$
(0.01)
 
 
 
 
 
2018
 
2017
 
2017
 
2017
(in thousands, except for per share amounts)
 
Q1
 
Q4
 
Q3
 
Q2
 
 
 
 
 
 
 
 
 
 
 
Continuing Operations:
 
 
 
 
 
 
 
 
Total revenues
$
3,573
  $
4,536
$
3,753
$
4,043
Net loss
$
(6,968)
  $
(1,833)
$
(7,627)
$
(8,870)
Basic and diluted loss per share
$
(0.01)
  $
-
$
(0.01)
$
(0.02)
 
 
 
 
 
 
 
 
 
 
Significant items causing variations in quarterly results
 
The Company’s toll milling revenues fluctuate due to the timing of uranium processing at the McClean Lake mill as well as changes to the estimated mineral resources of the Cigar Lake mine.
Revenues from DES fluctuate due to the timing of projects, which vary throughout the year in the normal course of business.
Exploration expenses are generally largest in the first and third quarters, due to the timing of the winter and summer exploration programs in Saskatchewan.
The Company’s results are also impacted, from time to time, by other non-recurring events arising from its ongoing activities.
 
RESULTS OF OPERATIONS
 
REVENUES
 
McClean Lake Uranium Mill
 
McClean Lake is located on the eastern edge of the Athabasca Basin in northern Saskatchewan, approximately 750 kilometres north of Saskatoon. Denison holds a 22.5% ownership interest in the MLJV and the McClean Lake uranium mill, one of the world’s largest uranium processing facilities, which is currently processing ore from the Cigar Lake mine under a toll milling agreement. The MLJV is a joint venture between Orano Canada Inc. (‘Orano Canada,’ formerly AREVA Resources Canada Inc.) with a 70% interest, Denison with a 22.5% interest, and OURD (Canada) Co. Ltd. with a 7.5% interest.
 
 
 
    
 MANAGEMENT’S DISCUSSION & ANALYSIS
 
In February 2017, Denison closed an arrangement with Anglo Pacific Group PLC and one of its wholly owned subsidiaries (the ‘APG Arrangement’) under which Denison received an upfront payment of $43,500,000 in exchange for its right to receive future toll milling cash receipts from the MLJV under the current toll milling agreement with the Cigar Lake Joint Venture (‘CLJV’) from July 1, 2016 onwards. The APG Arrangement consists of certain contractual obligations of Denison to forward to APG the cash proceeds of future toll milling revenue earned by the Company related to the processing of the specified Cigar Lake ore through the McClean Lake mill, and as such, the upfront payment was accounted for as deferred revenue.
 
During the three months ended March 31, 2019, the McClean Lake mill processed 4.9 million pounds U3O8 for the CLJV (March 31, 2018 – 4.4 million pounds U3O8) and recorded toll milling revenue of $1,263,000 (March 31, 2018 – $780,000). The increase in toll milling revenue in the current quarter, as compared to the prior year, is due to several factors. Firstly, the mill processed more pounds U3O8 in the first quarter of 2019 as compared to the first quarter of 2018. Secondly, during the first quarter of 2018, as a result in an update to the published Cigar Lake mineral resource estimate in the quarter, the Company recorded a negative non-cash cumulative catch-up accounting adjustment of $322,000, which reduced the toll milling activity in that period. During the current quarter, the Company recorded a nominal $26,000 positive non-cash cumulative accounting adjustment related to the Cigar Lake mineral resource estimate update published in the first quarter of 2019.
 
During the three months ended March 31, 2019, the Company also recorded accounting accretion expense of $800,000 on the toll milling deferred revenue balance (March 31, 2018 – $829,000). The annual accretion expense will decrease over the life of the contract as the deferred revenue liability decreases over time.
 
Denison Environmental Services
 
Mine decommissioning and environmental services are provided through Denison’s DES division – providing long-term care and maintenance for closed mine sites since 1997. With operations in Ontario, the Yukon Territory and Quebec, DES manages Denison’s Elliot Lake reclamation projects and provides post-closure mine care and maintenance services as well as environmental consulting services to various customers.
 
Revenue from DES during the three months ended March 31, 2019 was $2,237,000 (March 31, 2018 - $2,378,000). The decrease in revenue in the first quarter of 2019, as compared to 2018, was due to a decrease in activity at certain care and maintenance sites.
 
Management Services Agreement with UPC
 
Denison provides general administrative and management services to UPC. Management fees and commissions earned by Denison provide a source of cash flow to partly offset corporate administrative expenditures incurred by the Company during the year.
 
During the three months ended March 31, 2019, revenue from the Company’s management contract with UPC was $476,000 (March 31, 2018 - $415,000). The increase in revenues during the first quarter of 2019, compared to the prior year, was due to an increase in management fees earned based on UPC’s monthly net asset value (‘NAV’), partially offset by a decrease in commission-based fees. UPC’s balance sheet consists primarily of uranium held either in the form of U3O8 or UF6, which is accounted for at its fair value. The increase in NAV-based management fees was due to the increase in the average fair value of UPC’s uranium holdings during the three months ended March 31, 2019, compared to the prior year, resulting from both higher uranium spot prices and increased uranium holdings. The decrease in commission-based fees was due to a decrease in uranium purchases by UPC during the current period, as compared to the prior year. Denison earns a 1% commission on the gross value of UPC’s uranium purchases and sales.
 
OPERATING EXPENSES
 
Canada Mining
 
Operating expenses of the Canadian mining segment include depreciation and development costs, and may also include certain adjustments to the estimates of future reclamation liabilities at McClean Lake, Midwest and Elliot Lake.
 
Operating expenses in the three months ended March 31, 2019 were $1,210,000 (March 31, 2018 – $1,442,000). In the first quarter of 2019, operating expenses included depreciation of the McClean Lake mill of $855,000 (March 31, 2018 - $839,000), as a result of processing approximately 4.9 million pounds U3O8 for the CLJV (March 31, 2018 – 4.4 million pounds).
 
 
 
    
 MANAGEMENT’S DISCUSSION & ANALYSIS
 
 
In the three months ended March 31, 2019, operating expenses also included development and other operating costs related to the MLJV of $355,000 (March 31, 2018 – $603,000), predominantly due to the advancement of the Surface Access Borehole Resource Extraction (‘SABRE’) mining technology, as part of a multi-year test mining program operated by Orano Canada within the MLJV.
 
Environmental Services
 
Operating expenses during the three months ended March 31, 2019 totaled $2,052,000 (March 31, 2018 - $2,024,000). The expenses relate primarily to care and maintenance and consulting services provided to clients, and include labour and other costs.
 
CANADIAN MINERAL PROPERTY EXPLORATION & EVALUATION
 
During the first quarter of 2019, Denison’s share of exploration and evaluation expenditures was $4,229,000 (March 31, 2018 - $6,254,000). The decrease in exploration and evaluation expenditures, compared to the prior period, was due to a decrease in winter exploration activities.
 
Exploration spending in the Athabasca Basin is generally seasonal in nature, with spending higher during the winter exploration season (January to mid-April) and summer exploration season (June to mid-October). The following table summarizes the 2019 winter exploration activities, which were completed by the end of March 2019. All exploration and evaluation expenditure information in this MD&A covers the quarter ended March 31, 2019.