Denison expands Wheeler River resource

An updated resource estimate for the Phoenix uranium deposits in the Athabasca Basin usher them into an exclusive club of high-grade uncomformity deposits that includes the McArthur River mine 37 km to the northeast, the world’s largest and highest grade uranium mine, and the soon-to-be producing Cigar Lake deposit, 80 km to the northeast, which is often described as the largest undeveloped high-grade uranium deposit in the world.

The Phoenix A and B uranium deposits make up the Wheeler River project in northern Saskatchewan, in which Denison Mines (DML-T, DNN-N), the operator, holds a 60% stake, Cameco Corp. (CCO-T, CCJ-N) 30% and JCU Exploration Company the remainder.

Indicated resources for the two deposits combined now add up to 152,400 tonnes grading 15.6% U308 for 52.3 million lbs. of contained U308, a 47% increase in pounds of U308 over the previous resource estimate in 2010, while total inferred resources now stand at 11,600 tonnes grading an average of 29.8% for 7.6 million lbs U308, an increase of 100%.

The updated resource was based on data collected from surface diamond drilling campaigns between 2008 and 2012.

Denison describes the mineralization at Phoenix as having many similarities with other uncomformity-related  uranium deposits in the Athabasca Basin. It occurs along the sub-Athabasca uncomformity at its intersection with a moderately east dipping fault zone, which results in an elongated and sub-horizontal shape to the deposits.

David Sadowski of Raymond James has upgraded his six-twelve month target price for Denison’s shares to $1.80 from $1.60 and points out in a research note to clients that the Wheeler River project now exceeds the old Roughrider resource on both contained pounds and grade. In November 2011 Rio Tinto snapped up the Roughrider deposit, also in Saskatchewan, in its US$654 million acquisition of Hathor Exploration.

“We believe corroboration of a high-grade 60 million pounds resource confirms Wheeler as a world-class deposit at, or very near, the size to justify an economic mine,” he writes. “Accordingly, we view takeout potential—already high, given Denison’s 22.5% interest in the McClean Lake mill—as bolstered by the news.”

Sadowski also believes that there is significant exploration upside at the project, noting that the Zone A Extension is not included in the resource update and that both the A and B Zones have the potential to add pounds through in-fill drilling. He also argues that there are “many prospective targets coincident with McArthur-like quartzite ridges and/or significant geophysical anomalies” and says his notional resource expectation has grown from 70 million pounds to 90 million pounds.

News of the resource update comes at a time when the spot price for uranium is about US$42.75 per lb. U308. Last year uranium prices traded in a range of US$52.50- US$40.75, while in 2011 prices reached a high of US$73 per lb. and a low of US$49.00 per lb.

Construction of nuclear power plants and activity in the industry appears to be picking up some momentum. In a Jan. 9 research report to clients entitled: “Chinese reactor construction continues along at furious pace over the holidays,” analyst Colin Healey of Haywood Securities pointed out that construction on Unit 3 at the Tianwan nuclear power plant in China started on Dec. 27 and that the 1,000 megawatt Tianwan 3 is expected to start operations in 2018 with a fourth unit starting production the following year.

China’s Ningde nuclear power plant began generating electricity from Unit 1 on Dec. 28 (although further testing is required before it can start commercial production), while three other reactors at Ningde are being built. All four of Ningde’s plants are scheduled to start operation before the end of 2015.

Meanwhile, two Yeonggwang reactors that had been taken offline for quality concerns resumed operation in South Korea on Dec. 31 and Jan. 2, while Japan’s newly elected prime minister, Shinzo Abe, announced in his first televised interview after the Dec. 29 election, that he wants to build nuclear reactors. According to the New York Times, Abe told national television network TBS that the new reactors “will be completely different from those at the Fukushima Daiichi nuclear power plant” and that “with public understanding we will be building anew.” Japan’s previous government under former prime minister Yoshihiko Noda, vowed that it would phase out nuclear power by 2040 after the disaster at the Fukushima nuclear plant in March 2011.

In late December, Russia’s ITAR-TASS news agency, the successor to the Soviet TASS news agency, reported that President Vladimir Putin wrote in an article to India’s daily newspaper The Hindu on the eve of his official visit to the sub-continent that Russia hoped to build several nuclear power plants in India.