Vancouver — Investors drove Denison Mines’ (DML-T, DNN-x) share price down 24% after the company announced plans to shut down the Tony M uranium mine in Utah and shelve development plans for the Midwest uranium project in Saskatchewan.
Denison cited current economic conditions, including the price of uranium, for its decisions. At the beginning of the year, the spot price of uranium sat near US$100 per lb. but it has since declined to US$55 per lb.
The Midwest project is a joint venture: Paris-listed Areva (ARVCF-o) controls 69.16%, Denison holds 25.17%, and OURD, a Japanese mining company, owns the remaining 5.67%. Eleven months ago, the partners decided to go ahead with development at the site, which is 750 km north of Saskatoon near South McMahon Lake.
To develop the project, which is home to some 41.7 million lbs. U3O8, the partners planned to drain part of the Mink Arm of South McMahon Lake to build an open-pit mine almost 1 km long, 350 metres wide, and 215 metres deep. As currently designed, the pit would produce an estimated 36 million lbs. U3O8. The partners have identified extensions to the deposit that could increase production; in addition a second deposit, called Midwest A, lies just 3 km northeast.
However, capital costs have increased roughly 50% from the initial estimate of $435 million, while the price of uranium has lost ground significantly. In its news release on the matter, Areva said the project’s profitability would be uncertain were it launched today.
The partners plan to review the status of the project every six months. They will also complete the environmental assessment that has been under way since late 2005, as well as the project’s engineering plans. Those actions should enable the partners to advance the project quickly once economic conditions improve. Total expenditures for 2009 are expected to come in at $12.4 million.
Denison is also temporarily closing its Tony M mine in Ticaboo, Utah, until uranium prices rebound or the company is able to obtain favourable uranium contracts for the mine’s production. With Tony Mclosed, Denison’s American uranium production will be reduced by roughly 200,000 lbs., to between 1.2 and 1.6 million lbs.
In another cost-saving move, the company is reducing its expected exploration and capital spending for 2009. In terms of exploration, the company will spend $5.1 million in Canada, US$1.6million in the United States, and US$5 million in Mongolia. Another US$3 million has been allocated to complete the feasibility and licensing process for the company’s Mutanga uranium proj- ect in Zambia.
Denison’s moves come on the heels of third-quarter results showing almost negligible earnings of US$332,000. In the third quarter, the company brought in revenue totalling US$36.5 million and enjoyed foreign exchange gains of US$9.2 million, but spent US$7.68 million on exploration as part of US$47.1 million in expenses.
At Denison’s McClean Lake mill in Saskatchewan, production costs for the first nine months of 2008 were $55.94 per lb. U3O8. Operating costs are slightly higher at the company’s White Mesa mill in Utah: US$61.93 per lb. U3O8.
At the end of September, Denison held cash and cash equivalents totalling US$15.9 million plus a portfolio of investments valued at US$21 million. The company also has in place a US$125- million revolving credit facility with a three-year term, of which the company has drawn just over US$101 million.
Denison’s share price has basically tracked the price of uranium. A year ago, the company’s shares traded at around $9.50; over the past two months, its price has slid significantly. On the latest news, the stock lost another 33 to close at $1.02 apiece. The company has 190 million shares issued.
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