Denison solidifies itself via Korean deal

In the face of tough economic times Denison Mines (DML-T) is choosing the path of prudence, and the market is nodding its approval.

The uranium miner that has drastically cut production due to slumping uranium prices, will sell 19.9% of itself to Korea Electric Power Corp (KEPCO) in a deal that will also see it sell 20% of its annual production to the utility company.

While the price being paid by KEPCO in the off-take agreement was not disclosed, Andre Desautels, a spokesperson for Denison, said it would be higher than the current spot prices, making production economical again.

“It doesn’t make sense for anyone to produce at the current spot price,” Desautels says.

In all the deal will net Denison roughly $95 million – enough cash to pay down its revolving line of credit and keep its debt to earnings ratio within the parameters of its debt covenants. Company auditors had warned that the ratio could grow to a level that would break the covenant by the fourth quarter of this year.

The plan now will be to pay down the line of credit and then draw from it as necessary for project development.

In Toronto on April 14, the news sent the company’s shares up 16% or 21¢ to $1.51 on 8.3 million shares traded.

The uptick continues a positive trend started on April 2nd when it announced it had found a new mineralized zone at its Wheeler project in northern Saskatchewan.

That news broke the downward pressure its stocks had felt since beginning to fall from the $8 per share range last June. Its shares had traded for as low as 83¢ as recently as April 1.

Shares had largely been depressed by word from a month ago that the company was suspending some operations due to weak uranium prices, and that it was in danger of breaching covenants.

In all KEPCO will buy 58 million Denison shares through a private placement for $75.4 million and then turn around and sell roughly 15 million shares to companies connected with Lukas Lundin for roughly $19.5 million.

That works out to a price of $1.30 per share — a 15% premium to the 30-day moving average of the stock.

Lundin is the chairman of Denison, and is also chairman of Lundin Mining (LUN-T), Canadian Gold Hunter (CGH-T), Pearl Exploration (PXX-T), Red Back Mining (RBI-T), Tanganyika Oil and Vostok Nafta Investment.

As for the off-take agreement, Denison will sell 510,000 and 690,000 lbs of uranium a year to KEPCO between 2010 and 2015.

KEPCO is South Korea’s largest utility and its move comes at a time when its Asian counterparts, namely China and Japan, are securing natural resources abroad.

The deal allows KEPCO to appoint two directors to Denison’s board and has the right of first offer to acquire up to 20% of any assets Denison acquires with a partner or sells, it said.

After a surge that pushed pricing to over US$130 per lb. in the summer of 2007, the spot of uranium has been on the decline, an was recently in the US$40 per lb. range.