Denison Announces Second Quarter Loss Of $978,000
JULY 26, 2001 - 16:58 EDT
TORONTO, ONTARIO--Denison Mines Limited today reported a loss of
$978,000 ($0.00 per share) on revenue of $6,116,000 for the three
months ended June 30, 2001 compared with earnings of $388,000
($0.00 per share) on revenue of $6,622,000 for the second quarter
of 2000. Increased revenues from mining and Canadian oil and gas
did not offset the elimination of the Ecuador royalty income that
was $1,491,000 in the second quarter of 2000. Year-to-date the
Company had a loss of $83,000 compared with earnings of $1,600,000
($0.01 per share) in the first six months of 2000. Management's
emphasis will continue to be on improving revenues and profit from
Canadian oil and gas and Denison Environmental Services, while
reducing corporate expenses.
Mining
McClean Lake Uranium
Uranium sales from McClean Lake production for the second quarter
were about 23% of contracted annual sales volume (32% for the
first six months). Uranium sales are scheduled to be 8% in the
third quarter and 60% in the fourth quarter. Inventories of
uranium increased significantly in the first half because of the
levels of production and sales.
Oil and Gas
The Company's share of production from its oil and gas operations
has increased to about 130 barrels of oil and 130 mcf of
associated gas per day by the end of the second quarter. The
Company expects to participate in three or four new wells and one
recompletion during the balance of 2001, with the target of 300
barrels of oil equivalent by year-end.
During the quarter, a 50% working interest was purchased in the
Countess field in south-central Alberta for $2 million. Three
wells are currently producing and plans are being made to drill
one or two more wells in the near future. The completion of new
processing facilities and a water disposal well will decrease
costs and improve the reliability of production.
Under a new joint venture, we expect to participate in an
exploration well for gas near the U.S. border of Alberta with a
spud date scheduled for early August.
In Saskatchewan, production is currently from two vertical and one
horizontal oil wells. A second horizontal well is currently being
placed on production. One of the vertical wells will be
recompleted as a horizontal well in the third quarter and plans
are being considered for the drilling of a new exploration well.
The Company is continuing to review oil and gas acquisition
opportunities in Alberta and Saskatchewan.
Denison Environmental Services
As of April 1, 2001 Denison Environmental Services began operating
and monitoring five decommissioned uranium mine sites, located in
the Elliot Lake area, for Rio Algom. In July work commenced on
demolition and shaft capping work at Shebandowan in northern
Ontario.
The second quarter report to shareholders follows.
Denison is hosting a conference call on Friday, July 27 starting
at 9:00 a.m. (Toronto time) to discuss the year-end results. The
conference call will be web cast. 207.61.47.20 A
recording of the call will be available approximately two hours
after the call, through a link on Denison's web site.
www.denisonmines.com
Second Quarter Report 2001
Denison Mines Limited
To Our Shareholders
Denison Mines Limited today reported a loss of $978,000 ($0.00 per
share) on revenue of $6,116,000 for the three months ended June
30, 2001 compared with earnings of $388,000 ($0.00 per share) on
revenue of $6,622,000 for the second quarter of 2000. Oil and gas
revenue in the second quarter of 2000 included royalty income of
$1,491,000 from oil and gas production in Ecuador. In 2001, second
quarter oil and gas revenue of $173,000 was entirely from
production in western Canada. Year-to-date the Company had a loss
of $83,000 compared with earnings of $1,600,000 ($0.01 per share)
in the first six months of 2000. Revenue and earnings in the first
six months of 2000 included $1,153,000 realized from the sale of
Greek oil production prior to the shutdown in 1998 and $3,684,000
(2001 - $1,521,000) from the Ecuador oil royalty.
OPERATIONAL REVIEW
Mining
McClean Uranium Limited
McClean Lake production for the first six months of 2001 was 22%
above nominal capacity of 6 million pounds per year. Denison's
22.5% share of production was 390,000 pounds in the second quarter
(821,000 pounds year-to-date). Uranium sales in the second quarter
represented about 23% of planned annual sales volume. Mining of
the Sue C pit continued in the quarter and is expected to be
complete by the end of 2001 at which time sufficient ore will be
in stockpiles to feed the mill for three to four years, depending
on the production rate. When mining is completed, cash costs will
be reduced, enabling faster debt reduction.
Midwest Uranium Project
Assessment of the most advantageous mining methodology for the
Midwest uranium project is continuing.
Denison Environmental Services
As of April 1, 2001 Denison Environmental Services began operating
and monitoring five decommissioned uranium mine sites, located in
the Elliot Lake area, for Rio Algom. In July work commenced on
demolition and shaft capping work at Shebandowan in northern
Ontario. Revenue this year from the sale of used mining equipment
has declined significantly.
Oil and Gas
During the quarter the Company purchased a 50% interest in the
Countess area in south-central Alberta for $2 million. Three wells
are currently producing 175 bopd. The installation of new surface
facilities onsite should increase production by 10% to 20%.
Alternate oil marketing arrangements are also being reviewed.
At the 50% owned Flatland Freemantle property in Saskatchewan a
second horizontal well is being completed. Production from one
horizontal and one vertical well drilled in 2001 increased to
about 95 bopd per day at the end of the second quarter. Production
from these three wells should exceed 150 bopd once a water
disposal well drilled in the second quarter and related facilities
are completed in the next few weeks. At the 50% owned Flatland
Carlyle prospect, production is currently about 20 bopd from a
vertical section. During the third quarter a horizontal leg will
be drilled to more efficiently exploit this shallow zone.
On March 27, 2001, the Court of Appeal in Greece heard the
Company's appeal of the lower court decision awarding further
severance to former unionized employees. The timing of a decision
is not known.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Revenue for the second quarter included $5,622,000 (2000 -
$4,467,000) from uranium sales, $321,000 (2000 - $664,000) from
environmental services and $173,000 (2000 - $0) from Canadian oil
and gas. In the second quarter of 2000, $1,491,000 (2001 - $0) was
earned on the Ecuador oil royalty.
The McClean sales volume in the second quarter represented about
23% of planned annual sales volume (year-to-date 32%) under
long-term contracts. Readers are cautioned that sales volumes will
vary from quarter to quarter depending on the timing of delivery
requested on each contract by customers. Sales volumes in the
remainder of the year are expected to be 8% in the third quarter
and 60% in the fourth quarter. Sales are made under long-term
contracts and approximately 17% of sales under long-term contracts
are sensitive to fluctuations in spot prices.
Segmented earnings for mining in the second quarter improved by
$418,000 in the second quarter from a loss of $587,000 in 2000 as
a result of lower interest expenses and production costs.
Production costs are largely fixed and therefore sensitive to
production volumes. Cogema has advised that they wish to limit
McClean production in 2001 to 6 million pounds. Unit production
costs at this level would be 5% higher than if 7.2 million pounds
were produced.
Liquidity and Cash Resources
Year-to-date operations have generated cash of $2 million.
Repayments of $17.5 million have been made on long-term debt,
including $11 million from prior year accounts receivable
collected in the first quarter. Borrowings of $14.7 million
financed mining costs, uranium cost of sales and an increase in
uranium concentrate inventory.
Capital expenditures in 2001 of $3.8 million include $3.1 million
for Canadian oil and gas. This includes $2.0 million to acquire a
50% interest in the Countess oil field and $1.1 million for
development drilling at the Flatland Freemantle prospect. Capital
expenditures in each of 2001 and 2000 include $0.7 million at the
McClean uranium facility and Midwest uranium project.
Cash and marketable securities declined $4.5 million to $3.9
million at June 30 reflecting a $3.0 million payment on the Cogema
debt facility in March 2001. The Company has the ability on 45
days' notice to reborrow up to $15.7 million on this facility for
any purpose.
Except as discussed herein, the risk factors discussed that may
affect the Company and which are identified in the Company's
annual Management's Discussion and Analysis for 2000 remain
substantially unchanged.
E. Peter Farmer
President and Chief Executive Officer July 26, 2001
/T/
Consolidated Statements of Earnings
Denison Mines Limited
------------------------------------------------------------------------
(Unaudited - in thousands except per share data) Six months ended
Second Quarter June 30
2001 2000 2001 2000
------------------------------------------------------------------------
Revenue $ 6,116 $ 6,622 $ 10,903 $ 12,593
------------------------------------------------------------------------
Expenses
Operating and exploration costs 4,922 3,757 6,954 5,785
Interest on long-term debt 1,153 1,488 2,398 2,765
General corporate expenses 613 608 1,134 1,227
Investment income (82) (399) (290) (682)
------------------------------------------------------------------------
6,606 5,454 10,196 9,095
------------------------------------------------------------------------
Earnings before income
and resource taxes (490) 1,168 707 3,498
Income and resource taxes 488 780 790 1,898
------------------------------------------------------------------------
Net earnings (loss) for the period $ (978) $ 388 $ (83) $ 1,600
------------------------------------------------------------------------
------------------------------------------------------------------------
Net earnings (loss) per Common Share:
- Basic $ 0.00 $ 0.01 $ 0.00 $ 0.01
- Fully Diluted (note 4) $ 0.00 $ 0.01 $ 0.00 $ 0.01
------------------------------------------------------------------------
------------------------------------------------------------------------
Consolidated Statement of Retained Earnings
------------------------------------------------------------------------
Six months ended
Second Quarter June 30
(Unaudited - in thousands) 2001 2000 2001 2000
------------------------------------------------------------------------
Retained earnings - beginning
of period $ 74,756 $ 66,877 $ 73,861 $ 64,830
Net earnings (loss) for the period (978) 388 (83) 1,600
------------------------------------------------------------------------
73,778 67,265 73,778 66,430
Benefit of utilizing previously
unrecognized future
future tax assets - 344 - 1,179
------------------------------------------------------------------------
Retained earnings - end of period $ 73,778 $ 67,609 $ 73,778 $ 67,609
------------------------------------------------------------------------
------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated
financial statements
Consolidated Statements of Cash Flow
Denison Mines Limited
------------------------------------------------------------------------
Six months ended
Second Quarter June 30
(Unaudited - in thousands) 2001 2000 2001 2000
------------------------------------------------------------------------
Operating Activities
Net earnings for the period $ (978) $ 388 $ (83) $ 1,600
Adjustment for:
Depreciation, depletion
and amortization 1,830 1,905 3,806 3,519
Gain on sale of assets (190) - (169) (141)
Benefit of utilizing previously
unrecognized future
income tax assets - 344 - 1,179
Increase (decrease) in future
income and resource taxes (18) (23) 2 7
Changes in non-cash working capital:
Decrease (increase) in receivables,
prepaids and inventories (1,819) 13,736 2,610 11,867
Decrease in accounts payable,
accrued liabilities and
taxes payable (1,113) (20,404) (3,852) (30,532)
Funding of post employment benefits (113) (105) (232) (200)
Funding of Elliot Lake
mine reclamation (53) (44) (61) (105)
------------------------------------------------------------------------
Net cash generated by
(used in) operations (2,454) (4,203) 2,021 (12,806)
------------------------------------------------------------------------
Financing Activities
Borrowings on loan facilities 6,785 9,069 14,686 15,767
Repayments of loan facilities (3,460) (3,690) (17,539) (11,904)
------------------------------------------------------------------------
3,325 5,379 (2,853) 3,863
------------------------------------------------------------------------
Investing Activities
Proceeds on sale of assets - 22 2 163
Additions to property,
plant and equipment (2,859) (467) (3,874) (850)
Sale of marketable securities 772 459 1,728 2,110
------------------------------------------------------------------------
(2,087) 14 (2,144) 1,423
------------------------------------------------------------------------
Decrease in Cash and
Cash Equivalents (1,216) (1,190) (2,976) (7,520)
Cash and Cash
Equivalents - Beginning of Period 3,803 14,424 5,563 23,134
------------------------------------------------------------------------
Cash and Cash
Equivalents - End of Period $ 2,587 $ 15,614 $ 2,587 $ 15,614
------------------------------------------------------------------------
------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated
financial statements
Consolidated Balance Sheets
Denison Mines Limited
------------------------------------------------------------------------
June 30 December 31
(Unaudited - in thousands) 2001 2000
------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,587 $ 5,563
Marketable securities 1,287 2,841
Accounts receivable 5,670 13,885
Inventories 12,732 7,479
Supplies and prepaid expenses 2,627 2,499
------------------------------------------------------------------------
24,903 32,267
Inventories 11,967 11,743
Property, plant and equipment 122,429 122,368
------------------------------------------------------------------------
$ 159,299 $ 166,378
------------------------------------------------------------------------
------------------------------------------------------------------------
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 4,878 $ 7,480
Current income and resource taxes payable 31 1,281
Current portion of long-term debt 5,175 11,086
------------------------------------------------------------------------
10,084 19,847
Long-term debt 54,680 51,622
Provision for post-employment benefits 10,801 11,033
Provision for Elliot Lake mine reclamation 6,252 6,313
Future income and resource taxes 2,775 2,773
------------------------------------------------------------------------
84,592 91,588
SHAREHOLDERS' EQUITY 74,707 74,790
------------------------------------------------------------------------
$ 159,299 $ 166,378
------------------------------------------------------------------------
------------------------------------------------------------------------
Contingent Liability (note 3)
The accompanying notes are an integral part of the consolidated
financial statements
Notes to Consolidated Financial Statements(Unaudited)
Denison Mines Limited
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. Operating results for the period ended June 30, 2001 are
not necessarily indicative of the results that may be expected for
the full year ended December 31, 2001. For further information, the
unaudited interim consolidated financial statements and notes should
be read in conjunction with Denison's consolidated financial
statements included in the Annual Report for the year ended
December 31, 2000.
The accounting policies and methods of application are consistent
with those used in the 2000 audited financial statements. Certain
prior year balances have been reclassified to conform with the current
year's basis of presentation.
2. Long-term Debt
As at June 30, the Company had made prepayments of $15,000,000
(December 31, 2000 - $12,000,000) on the McClean Lake loan facility
and had the ability to redraw $15,679,000 (December 31, 2000 -
$12,131,000), upon 45 days' notice, representing the amount prepaid
and resulting interest savings.
3. Contingent Liability
In November 1998, production ceased at the Company's former Prinos oil
and gas operation, offshore Greece, and employees received severance
pay averaging 16 months' wages. All operating facilities were
subsequently transferred to the Greek state pursuant to an amendment
to the concession agreement ratified by the Greek parliament in 1999,
pursuant to which the wells, production platform and processing
facilities associated with the oil and gas operation were transferred
to the Greek State in consideration of the Greek State assuming all
of the Consortium's remaining decommissioning liabilities. A group of
former employees sued the Greek operating company with the objective
of seeking both reinstatement and further termination pay. In early
2000, a Greek court determined the termination of the employees was
invalid and abusive, and that further payments should be made to 227
of the former employees. As many of the employees were employed or
received other compensation during 1999 that reduces the amount
awarded to them, it is difficult to assess the magnitude of the
judgment that could result in payments to former employees of up to
$13 million. An appeal of the award was heard on March 27, 2001.
Timing of a decision is unknown and the results of the appeal cannot
be determined at this time. The Company has an accrual of $1.1 million
at June 30, 2001 to cover any remaining liabilities in Greece.
4. Capital Stock
As of July 26, 2001, the Company has 317,871,195 Common Shares issued
and outstanding and 10,999,992 Common Share Purchase Warrants
outstanding. Between December 31, 2000 and July 26, 2001, 200,000
Common Share Purchase Options were issued and as a result on
July 26, 2001 11,395,000 options were outstanding and exercisable at
prices ranging from $0.12 to $0.39 per Common Share. If all Common
Share Purchase Warrants and stock options had been exercised on
July 26, 2001, the Company would have 340,266,187 Common Shares
issued.
5. Segmented Financial Information
------------------------------------------------------------------------
Six months ended
Second Quarter June 30
(Unaudited-in thousands) 2001 2000 2001 2000
------------------------------------------------------------------------
Revenue
Mining $ 5,622 $ 4,467 $ 8,320 $ 6,946
Environmental services 321 664 850 810
Oil and gas - Ecuador - 1,491 1,521 3,684
- Greece - - - 1,153
- Canada 173 - 212 -
------------------------------------------------------------------------
6,116 6,622 10,903 12,593
------------------------------------------------------------------------
Operating and Exploration Costs
Mining 4,305 3,226 5,789 5,059
Environmental services 409 528 936 876
Oil and gas 208 3 229 (150)
------------------------------------------------------------------------
4,922 3,757 6,954 5,785
Interest on long-term debt - mining 1,060 1,488 2,257 2,765
Resource taxes - mining 426 340 633 526
------------------------------------------------------------------------
6,408 5,585 9,844 9,076
------------------------------------------------------------------------
Segment Earnings
Mining (169) (587) (359) (1,404)
Environmental services (88) 136 (86) (66)
Oil and gas (35) 1,488 1,504 4,987
------------------------------------------------------------------------
(292) 1,037 1,059 3,517
------------------------------------------------------------------------
General corporate expenses 613 608 1,134 1,227
Interest on other long-term debt 93 - 141 -
Investment income (82) (399) (290) (682)
Income tax expenses 62 440 157 1,372
------------------------------------------------------------------------
Net earnings $ (978) $ 388 $ (83) $ 1,600
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
General Shareholder Information
Denison Mines Limited
Common Shares
The Company is authorized to issue an unlimited number of Common
Shares. Each holder of Common Shares is entitled to receive notice
of and to attend all meetings of shareholders and to vote thereat.
Each holder of Common Shares is entitled to one vote in respect of
each Common Share held.
Common Share Purchase Warrants
Each warrant entitles the holder to purchase one Common Share at
$0.55 per share. They are not listed for trading and carry no
voting rights. |
