30-Apr-03 Denison Reports First Quarter Operating Cash Flow Of $6,686,000
Wednesday April 30, 5:10 pm ET
TORONTO, ONTARIO-- Denison Energy Inc. reported earnings of $125,000 ($0.01 per share) on revenue of $7,716,000 for the three months ended March 31, 2003. This compares with earnings of $484,000 ($0.03 per share) on revenue of $4,763,000 in the first quarter of 2002.
Segmented Information
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Three months ended
March 31
(unaudited - in thousands) 2003 2002
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Revenue
Mining $ 4,200 $ 3,041
Oil and Gas 2,650 1,079
Environmental Services 866 643
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$ 7,716 $ 4,763
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Net Earnings
Mining $ 176 $ 890
Oil and Gas 500 29
Environmental Services 85 218
Corporate and taxes (636) (653)
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$ 125 $ 484
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Significant events in the quarter included:
- Net cash generated by operations was $6,686,000 in the first quarter of 2003 compared with $2,894,000 in the first quarter of 2002.
- The Cogema loan was reduced by $5.3 million to $46.7 million in the quarter, after reborrowing $2.0 million to fund oil and gas capital spending and for general corporate purposes.
- Limited gas production commenced in February at Knappen and construction is currently underway to tie in the two Aden gas discoveries.
- Two new gas exploration targets identified at Aden.
- 2003 mining results were adversely affected by a strengthening Canadian dollar and by a foreign exchange loss of $297,000 on the collection of December receivables.
- Denison's former Greek employees have appealed the Greek Court of Appeal's decision that unanimously rejected their claims.
As a result of increased revenues from all operating segments, revenues in the first quarter of 2003 were up by 62% over the revenues in the same period last year. Net cash generated from operations was up over 131% in the same period. However, earnings were down significantly primarily a result of the strengthening of the Canadian dollar that has resulted in a foreign exchange loss in the quarter and has reduced margins on our uranium sales contracts.
Although the current operating license for the McClean Lake uranium facility does not expire until August 2005, an application for a new operating license has been filed with the Canadian Nuclear Safety Commission. This new licensing process is expected to remedy all the technical deficiencies in the licensing process that were perceived by the decision of the Federal Court in September last year and the licensing process will be pursued in parallel with the appeal of that decision.
Efforts are continuing to tie in the gas wells that are shut in and to increase production from wells that are on reduced production because of pipeline capacity. Tie ins of the two Aden wells are scheduled to be completed in the next few weeks and there will be sufficient capacity for any new discoveries in that area. The drilling of two new exploration wells will commence next month. The tie in of the new Knappen well, in which we have a 38.5% interest, is scheduled for mid May. We anticipate reaching full production of the 260 barrels of oil equivalent per day of gas production currently shut-in, before the end of the third quarter 2003.
All operations are continuing their efforts to reduce costs.
The uranium market has started to emerge from the doldrums of the last six months. Oil prices have decreased significantly to the U.S. $26 range for WTI from the February highs in the U.S. $35 range. Aeco gas prices have also softened but are remaining in the $6.00 to $7.00 range.
The first quarter 2003 Report to Shareholders follows.
Conference Call
Denison is hosting a conference call on Thursday May 1, 2003 starting at 8:30 a.m. (Toronto time) to discuss the First Quarter 2003 results. The webcast conference call will be available live through a link on Denison's website www.denisonenergy.com. A recorded version of this conference call will be available on Denison's website or by calling 416-252-1143 from approximately two hours after the call until 5:00 p.m. on May 16, 2003.
The news release contains forward-looking information with respect to Denison's operations and future financial results. Actual results may differ from expected results for a variety of reasons including factors discussed in the Company's Management Discussion and Analysis section of its 2002 Annual Report.
First Quarter Report 2003
Denison Energy Inc.
To Our Shareholders
DENISON REPORTS FIRST QUARTER OPERATING CASH FLOW OF $6,686,000
Denison Energy Inc. reported earnings of $125,000 ($0.01 per share) on revenue of $7,716,000 for the three months ended March 31, 2003. This compares with earnings of $484,000 ($0.03 per share) on revenue of $4,763,000 in the first quarter of 2002.
Segmented Information
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Three months ended
March 31
(unaudited - in thousands) 2003 2002
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Revenue
Mining $ 4,200 $ 3,041
Oil and Gas 2,650 1,079
Environmental Services 866 643
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$ 7,716 $ 4,763
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Net Earnings
Mining $ 176 $ 890
Oil and Gas 500 29
Environmental Services 85 218
Corporate and taxes (636) (653)
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$ 125 $ 484
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Significant events in the quarter included:
- Net cash generated by operations was $6,686,000 in the first quarter of 2003 compared with $2,894,000 in the first quarter of 2002.
- The Cogema loan was reduced by $5.3 million to $46.7 million in the quarter, after reborrowing $2.0 million to fund oil and gas capital spending and for general corporate purposes.
- Limited gas production commenced in February at Knappen and construction is currently underway to tie in the two Aden gas discoveries.
- Two new gas exploration targets identified at Aden.
- 2003 mining results were adversely affected by a strengthening Canadian dollar and by a foreign exchange loss of $297,000 on the collection of December receivables.
- Denison's former Greek employees have appealed the Greek Court of Appeal's decision that unanimously rejected their claims.
Mining
Uranium production at McClean resumed January 7, 2003 and Denison's share of production in the first quarter was 340,000 pounds compared with 381,000 pounds in the first quarter of 2002. The Company's share of scheduled production in 2003 is 1,350,000 pounds.
Uranium sales volumes in 2003, as currently contracted, will be about 7% less than 2002. Deliveries in the first quarter were 45% higher than the first quarter of 2002 and represented 14% (2002 - 9%) of annual contracted volumes. Planned deliveries for the balance of 2003 are 45% in the second quarter, 7% in the third quarter and 34% in the fourth quarter. Since all sales are denominated in U.S. dollars, strengthening of the Canadian dollar during the quarter adversely impacted revenues and reduced the margins. In addition, the change in the exchange rate caused a foreign exchange loss of $297,000 on collection of uranium receivables outstanding at December 31, 2002. This compares with a foreign exchange gain of $112,000 recorded in the corresponding period of 2002.
Mining earnings in the first quarter 2002 include a one-time favourable adjustment of prior period expenses of $517,000.
No date has been set to hear the appeal filed by the Canadian Nuclear Safety Commission ("CNSC") and by Cogema against the September 24, 2002 decision of the Federal Court of Canada, Trial Division quashing the original operating license issued in 1999 for the McClean Lake facility. A stay of this decision was obtained from the Federal Court of Appeal on November 8, 2002. This facility continues to operate normally under the four-year operating license granted in August 2001. Efforts are continuing to otherwise remove any uncertainty about the valid status of the McClean operating license. An application for a new operating license for the McClean mill has been filed with the CNSC, even though the existing license does not expire until 2005. This new licensing process is expected to remedy all of the technical deficiencies in the licensing process that were perceived by the decision of the Federal Court of Canada, Trial Division.
In addition, the province of Saskatchewan, the Lac La Ronge Indian Band, the la rgest First Nation in Saskatchewan, and Northern Resource Trucking Limited Partnership (owned 71% by the northern Saskatchewan First Nations and Metis communities) have now filed applications to become interveners in the appeal in support of continued operation of the McClean facility.
Following the discovery in early 2002 of unconformity related mineralization at the 22.5% owned Caribou Lake area, within three kilometres of the Sue C pit, the McClean Lake participants began an extensive geophysical and drilling program as the first step in an intensive exploration program in this favourable area. The recently completed winter 2003 program consisted of 57 diamond drill holes, totaling 9,510 metres. Targets included some holes in close proximity to last year's discovery hole as well as reconnaissance drilling in the general area. Results of the program are currently being evaluated.
Oil and Gas
Average daily production in the quarter was 640 (2002 - 515) barrels of oil equivalent at a 6:1 gas to oil conversion rate ("boe").
During the quarter capital spending totaled almost $2.0 million including the acquisition of additional interests in the Skiff oil property and the drilling of 4.0 gross (3.08 net) wells, resulting in 1.0 gross (1.0 net) standing gas well in the Evi area and 3.0 gross (2.08 net) dry and abandoned wells.
During the quarter, the Company entered into an agreement for the sale of the Bow Island gas well that had been drilled and completed in the fourth quarter of 2002 at a cost of approximately $350,000, but had been shut-in pending available pipeline capacity. The purchaser of the well and single section of land was the owner and operator of the surrounding lands and pipeline infrastructure. The proceeds of this sale of $944,000 were received in early April. Proceeds are credited against property, plant and equipment resulting in no recognition of a gain on this transaction.
The Company was successful in commencing limited production from the successful Knappen gas discovery made last fall. The Company currently has three additional gas wells shut in awaiting pipeline capacity. Another well at Knappen in which Denison has a 38.5% interest should be tied in and producing in the next two weeks at 500 mcf per day. By mid May, the two gas wells at Aden should be tied in and producing. One of these wells will be tied in to a high-pressure line that will have capacity for future discoveries in the Aden area.
Efforts are being focused on cost reduction and maximizing production. The injection of all water produced at Countess was implemented in April thereby eliminating water trucking and third party water disposal costs; additional water injection is planned at Skiff; and the Lubicon oil well was connected to the pipeline system in March.
As soon as permits are obtained, two new exploration wells will be spudded at Aden, in which Denison will have a 100% interest.
Denison Environmental Services
Denison Environmental Services continued to provide services under its contract for environmental monitoring and maintenance of five closed mine sites for Rio Algom at Elliot Lake and under its contract for project management for the decommissioning of the Hope Brook mine in Newfoundland. DES was also active in decommissioning work at the old Coppercorp mine in Northern Ontario for the Ministry of Northern Development and Mines and has recently been awarded a contract by the government of Newfoundland and Labrador to oversee surplus mining asset disposal at Hope Brook.
Markets
The uranium spot price was US$10.20 at December 31, 2002 and US$10.10 at the end of March 2003. The price has increased to US$10.75 in late April. The Company continues to expect increasing uranium prices over the next several years as a result of declining inventories and tightening supply. The recent events at two other uranium production facilities have had a significant effect on current and future supply. The Company sells under 11 long-term contracts, each with different pricing formulas. Approximately 16% of the Company's uranium revenue is sensitive to spot price fluctuations. For the remainder of the year, a change in the spot price of US$1.00 a pound would affect Denison's revenue by about $0.2 million.
Oil markets
The price of oil remained strong in the first three months of 2003, reaching 12-year highs in mid February. Prices have been driven by the situation in Venezuela, conflict in Iraq and dwindling crude oil stocks in the United States.
The Company realized an average selling price for oil of $45.45 per barrel for the three months ended March 31, 2003. This price was 52% higher than the $29.86 per barrel received in the first quarter of last year. The Company realized an average natural gas price of $7.13 per mcf in the first quarter of 2003, an increase of approximately one and a half times from the $2.86 per mcf received in the comparative prior year period. Gas prices in the first three months of 2003 continued to be supported by colder weather and reduced quantities in storage.
Product prices are volatile and subject to a wide range of unforeseeable events outside of the Company's control.
Liquidity
During the quarter, following a review of the Company's most recent oil and gas reserve report, one of the Company's lines of credit was renewed for $4.9 million, with provisions for increases to $6.0 million, providing certain production criteria are met later in the year.
At March 31, 2003, the Company had the ability to redraw $5.3 million from Cogema and draw $0.7 million on the credit line described above. During the quarter, $2.0 million was redrawn on the Cogema loan to fund oil and gas capital spending and other corporate requirements.
A total of $1.2 million of the flow-through share proceeds remains to be spent on eligible Canadian Exploration Expenses prior to August 2004.
The book value (at cost) as at March 31, 2003 of uranium inventories of $11.9 million and $13.6 million for stockpiled ore in stockpiles represents 55% of the Cogema loan balance ($46.7 million) then outstanding.
E. Peter Farmer
President and Chief Executive Officer April 30, 2003
Consolidated Statements of Earnings
Denison Energy Inc.
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Three months ended
March 31
(unaudited - in thousands except per
share data) 2003 2002
---------------------------------------------------------------------
Revenue $ 7,716 $ 4,763
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Expenses
Operating and exploration costs 5,412 2,496
Royalties and provincial capital taxes 865 401
Interest expense 774 812
General corporate expenses 653 520
Investment and other income (175) (27)
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7,529 4,202
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Earnings before income taxes 187 561
Income tax expense 62 77
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Net earnings for the period $ 125 $ 484
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Net earnings per Common Share - Basic (note 6) $ 0.01 $ 0.03
- Diluted (note 6) $ 0.01 $ 0.03
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Consolidated Statements of Retained Earnings
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Three months ended
March 31
(unaudited - in thousands) 2003 2002
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Retained earnings - beginning of period $ 81,647 $ 78,579
Net earnings for the period 125 484
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Retained earnings - end of period $ 81,772 $ 79,063
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The accompanying notes are an integral part of the consolidated
financial statements
Consolidated Statements of Cash Flow
Denison Energy Inc.
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Three months ended
March 31
(unaudited - in thousands) 2003 2002
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Operating Activities
Net earnings for the period $ 125 $ 484
Items not affecting cash:
Depletion, amortization and reclamation 2,209 1,886
Drawdown of ore from stockpiles 1,216 1,366
Loss on sale or write down of assets 8 -
Increase (decrease) in future income
taxes (25) 7
Stock option costs expensed (note 6) 90 -
Changes in non-cash working capital:
Decrease in receivables, prepaids and
inventories 4,760 2,292
Decrease in accounts payable and accrued
liabilities (1,656) (3,071)
Funding of post employment benefits (20) (70)
Funding of Elliot Lake mine reclamation (21) -
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Net cash generated by operations 6,686 2,894
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Financing Activities
Increase in bank indebtedness 502 890
Additions to long-term debt 6,342 6,905
Repayments of long-term debt (11,637) (10,454)
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(4,793) (2,659)
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Investing Activities
Additions to property, plant and
equipment (2,153) (505)
Proceeds on sale of other assets 143 -
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(2,010) (505)
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Decrease in cash and cash equivalents (117) (270)
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Cash and cash equivalents - beginning of
period 988 2,177
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Cash and cash equivalents - end of
period $ 871 $ 1,907
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The accompanying notes are an integral part of the consolidated
financial statements
Consolidated Balance Sheets
Denison Energy Inc.
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March 31 December 31
(unaudited - in thousands) 2003 2002
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ASSETS
Current Assets
Cash and cash equivalents $ 871 $ 988
Accounts receivable 6,763 13,084
Inventories and prepaid expenses (note 2) 17,619 15,115
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25,253 29,187
Inventory of ore in stockpiles - long-term
portion (note 2) 8,732 9,689
Property, plant and equipment (note 3) 130,135 131,524
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$ 164,120 $ 170,400
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LIABILITIES
Current Liabilities
Bank indebtedness $ 4,292 $ 3,790
Accounts payable and accrued liabilities 5,571 7,227
Current portion of long-term debt (note 4) 3,375 10,712
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13,238 21,729
Long-term debt (note 4) 45,600 43,558
Provision for post-employment benefits 10,029 10,063
Provision for Elliot Lake mine reclamation 6,611 6,598
Future income taxes 275 300
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75,753 82,248
SHAREHOLDERS' EQUITY 88,367 88,152
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$ 164,120 $ 170,400
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Contingent Liabilities and Commitment (note 5)
The accompanying notes are an integral part of the consolidated
financial statements
Notes to Consolidated Financial Statements (unaudited)
Denison Energy Inc.
1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). Interim financial statements do not include all information required by Canadian GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. For further information, the unaudited interim consolidated financial statements and notes should be read in conjunction with Denison's 2002 consolidated financial statements included in its 2002 Annual Report.
Except as noted above, the accounting policies and methods of application are consistent with those used in the 2002 audited financial statements. Certain prior period balances have been reclassified to conform to the current year's basis of presentation.
2. Inventories and prepaid expenses
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March 31 December 31
2003 2002
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(in thousands)
Uranium concentrates $ 10,525 $ 8,046
Inventory of ore in stockpiles 13,565 14,522
Mine supplies 1,394 1,405
Prepaid expenses 867 831
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26,351 24,804
Less: Non-current portion - inventory of ore in
stockpiles 8,732 9,689
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Current portion inventories and prepaid expenses $17,619 $ 15,115
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3. Property Plant and Equipment
(a) The net property, plant and equipment balance consists of:
March 31 December 31
2003 2002
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Accumulated
depletion and
Cost amortization Net Net
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(in thousands)
Mining
McClean/ Midwest
uranium projects $ 130,009 $ 20,949 $ 109,060 $ 110,724
Oil and Gas 23,766 3,030 20,736 20,447
Environmental
Services 547 208 339 353
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$ 154,322 $ 24,187 $ 130,135 $ 131,524
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4. Long-term Debt
March 31 December 31
2003 2002
---------------------------------------------------------------------
(in thousands)
McClean Lake loan $ 46,667 $ 51,962
Other long-term debt 2,308 2,308
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48,975 54,270
Less: Current portion 3,375 10,712
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$ 45,600 $ 43,558
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