Denison posts loss in first quarter (May 21, 2007)

Higher operating costs left Denison Mines (DML-T, DNN-X) with a loss in the first quarter of 2007, despite high uranium prices.

Denison lost US$5.1 million on revenue of US$11.7 million in the quarter, compared with a loss of US$3.7 million on revenue of US$666,000 in the first quarter of 2006. The recent quarter’s uranium sales were US$8.3 million, at an average price of US$62.27 per lb. U3O8, with spot prices touching US$95 per lb. at the end of the quarter.

Denison’s sales contracts for uranium from the McClean Lake operation in Saskatchewan, where it is in a joint venture with Areva (arvcf-o), require delivery of about 3.6 million lbs. (1,633 tonnes) U3O8 in 2007, either at a set price or at a percentage of the spot price; Denison’s share of those sales includes 590,000 lbs. (268 tonnes) at between 80% and 85% of spot, plus 220,000 lbs. (100 tonnes) at prices between US$12.50 and US$25.50 per lb. Contracts extend to 2009, but Denison says future sales contracts will be at market prices with a floor price.

McClean produced 455,000 lbs. (206 tonnes) U3O8 in the quarter, with Denison’s 22.5% share amounting to 102,000 lbs. (46 tonnes). The mill is slated to produce between 2.2 million lbs. (1,000 tonnes) and 3 million lbs. (1,360 tonnes) U3O8 during 2007; the final figure will be affected by progress in drilling jet-boring holes at the McClean North deposit, an expansion of leaching capacity at the mill, and the time required for permitting the mill expansion.

The company’s White Mesa mill in Utah, one of the assets it acquired in the merger with International Uranium, processed 33,000 tonnes of “alternate feed” — contaminated soils from former nuclear processing sites — from the beginning of February to the end of March. Denison took in US$2.1 million from processing fees and from the sale of 81,000 lbs. (37 tonnes) of recovered U3O8. Another 323,000 lbs. (147 tonnes) is on inventory, plus about 21 tonnes of vanadium.

White Mesa is undergoing a US$15-million refurbishment and should produce about 400,000 lbs. (180 tonnes) U3O8 this year. Denison expects to have a series of toll-milling agreements with other uranium miners in the southwestern United States, where a number of former producing properties are being put back into operation.

Mining at the company’s four U.S. mines, all in the Uravan district of southwestern Colorado and southeastern Utah, was restarted in June 2006 producing 5,850 tonnes of ore for the White Mesa mill. Currently, 7,530 tonnes grading 0.33% U3O8 and 1.77% V2O5 are stockpiled at White Mesa while alternate-feed work continues.

Expanded exploration budgets accounted for part of the increase in Denison’s costs during the quarter, doubling to US$5 million from US$2.5 million in the corresponding quarter of 2005. Budgets in the U.S. Southwest account for US$1.1 million, and in the Athabasca basin of Saskatchewan, US$15.5 million. Another US$6.6 million is earmarked for projects in Mongolia.

Denison’s A$1.15-per-share bid for Australian uranium exploration company OmegaCorp (OMGCF-O, OMC-A) stalled at 33% when it was closed in April, and was followed by a bid from Central African Mining and Exploration (CEAMF-O, CFM-L) offering a share-for-share takeover that would value OmegaCorp at A$1.44 per share or A$222 million. Denison said it is still “evaluating its options” for the 33% shareholding in OmegaCorp and may sell it to Central African Mining.

During the quarter, Denison issued 9 million ordinary shares and 1.1 million flow-through shares, for proceeds of $124 million (US$107 million). At quarter-end Denison had $105 million in cash and $44 million in other current assets, with $22 million in short-term liabilities.