Denison Mines Limited: Denison Announces Third Quarter Net
Earnings Of $608,000
TORONTO, ONTARIO--Denison reported earnings of $608,000 ($0.00 per share) for the three
months ended September 30, 2001 on revenue of $4,329,000. This compares with earnings of
$1,637,000 ($0.00 per share) on revenue of $9,452,000 in the third quarter of 2000. Earnings and revenues in the third quarter of
2000 included $2,714,000 from receipt of the Ecuador royalty, which was fully paid out to Denison in the first quarter of 2001.
Management's emphasis continues on improving revenues and earnings from Canadian oil and gas and Denison Environmental
Services and a reduction in operating and corporate costs.
Mining
Denison's 22.5% share of McClean Lake production for the first nine months was 1,126,000 pounds of U3O8. As a result inventory
of U3O8 has increased to $10,187,000 at September 30, 2001. Mining of the Sue C pit continued and is expected to be complete by
the end of 2001. Ore recovery continues to exceed original expectations and when mining is completed there will be sufficient ore in
stockpiles to feed the mill for at least four years.
Uranium sales volumes in the third quarter of 2001 represented only 8% of annual contracted volumes, compared with 19% in the
third quarter of 2000. In 2001, 60% of annual volumes are scheduled in the fourth quarter compared with 53% in 2000.
The Canadian Nuclear Safety Commission has granted a new four-year operating license for McClean with an annual production rate
of up to 8 million pounds of U3O8.
Denison Environmental Services
Denison Environmental Services was active during the third quarter on projects involving monitoring of decommissioned mines,
consulting on mine closeout plans, shaft capping and demolition as a result of contracts with Inco, Stillwater, Rio Algom and Iron Ore
Company of Canada. In addition, the Company has been appointed the project manager for the decommissioning and reclamation of
the Hope Brook mine site in Newfoundland commencing on September 1, 2001 and continuing for at least 30 months. Revenue to date
this year from the sale of used mining equipment has declined significantly, compared with the prior year.
Oil and Gas
The Company's share of production from its oil and gas operations at the end of the quarter was 140 barrels of oil equivalent per day.
Denison holds a 50% working interest in three producing wells at the Countess field in southern Alberta and four producing wells in
the Carlyle area in southeastern Saskatchewan, three of which are horizontal wells.
Results do not include any contribution from the acquisition of Innovative Energy Ltd. scheduled to close in early November or from
the recent Knappen gas discovery discussed below. Production is projected to exceed 650 barrels of oil equivalent per day before the
end of November.
The Company's Third Quarter Report to Shareholders follows.
Denison is hosting a conference call on Friday, October 26, 2001 starting at 9:00 a.m. (Toronto time) to discuss the third quarter
results. The conference call will be web cast at 207.61.47.20 or through a link on denisonmines.com. A
recording of the call will be available approximately two hours after the call through Denison's web site.
Third Quarter Report 2001
Denison Mines Limited
To Our Shareholders
Denison reported earnings of $608,000 for the three months ended September 30, 2001 on revenue of $4,329,000. This compares
with earnings of $1,637,000 on revenue of $9,452,000 in the third quarter of 2000. Earnings and revenues in the third quarter of 2000
included $2,714,000 from receipt of the Ecuador royalty, which was fully paid out to Denison in the first quarter of 2001. Uranium
sales volumes in the third quarter of 2001 represented only 8% of annual contracted volumes, compared with 19% in the third quarter
of 2000. In 2001, 60% of annual volumes are scheduled in the fourth quarter compared with 53% in 2000.
Year-to-date the Company had earnings of $525,000 compared with earnings of $3,237,000 in 2000. Revenue and earnings for the
first nine months of 2000 included $6,398,000 (2001-$1,521,000) from the Ecuador oil royalty, $1,153,000 realized from the sale of
Greek oil produced prior to the shutdown in 1998, and 47% of contracted uranium sales. Year-to-date in 2001, uranium sales volumes
were 40% of annual contracted sales volumes.
OPERATIONAL REVIEW
Mining
Denison's 22.5% share of McClean Lake production for the first nine months was 1,126,000 pounds of U3O8. As a result inventory
of U3O8 has increased to $10,187,000 at September 30, 2001. Mining of the Sue C pit continued and is expected to be complete by
the end of 2001. Ore recovery continues to exceed original expectations and when mining is completed there will be sufficient ore in
stockpiles to feed the mill for at least four years.
The Canadian Nuclear Safety Commission has granted a new four-year operating license for McClean with an annual U3O8.
production rate of up to 8 million pounds.
Denison Environmental Services
Denison Environmental Services was active during the third quarter on projects involving monitoring of decommissioned mines,
consulting on mine closeout plans, shaft capping and demolition as a result of contracts with Inco, Stillwater, Rio Algom and Iron Ore
Company of Canada. In addition, the Company has been appointed the project manager for the decommissioning and reclamation of
the Hope Brook mine site in Newfoundland commencing on September 1, 2001 and continuing for at least 30 months. Revenue to date
this year from the sale of used mining equipment has declined significantly, compared with the prior year.
Oil and Gas
The Company's share of production from its oil and gas operations at the end of the quarter was 140 barrels of oil equivalent (``boe'')
per day. Denison holds a 50% working interest in three producing wells at the Countess field in southern Alberta and four producing
wells in the Carlyle area in southeastern Saskatchewan, three of which are horizontal wells. Results do not include any contribution
from the acquisition of Innovative Energy Ltd. scheduled to close in early November or from the recent Knappen gas discovery
discussed below.
During the quarter, the Company successfully drilled and completed the Knappen gas well in southern Alberta, with production
scheduled to commence before the end of November. Denison holds a 100% interest in this well until two times its investment is
recouped and thereafter a 50% interest. This well has tested at over 2 million cubic feet per day with a preliminary reserve estimate of
3.7 billion cubic feet of gas.
The Company continues to expand its oil and gas operations in western Canada. On October 4, 2001, Denison announced that it has
agreed to acquire Innovative Energy Ltd. The purchase price of approximately $4.9 million consists of the assumption of $2.0 million
in debt, payment of $1.9 million of cash and issue of $1.0 million of Denison common shares. Subject to the receipt of all necessary
regulatory approvals and completion of due diligence, closing is expected in early November.
Based on an independent engineering report prepared as of July 1, 2001 and converting gas to oil equivalent at 6:1, Innovative's
reserves totaled 670,000 boe consisting of two-thirds oil and one-third gas. This report does not take into account a further 275,000
boe from Innovative's share of the portion of the Knappen gas discovery not already owned by Denison.
Innovative's current production is about 215 boe/day of which 45% is oil. Innovative also holds nearly 15,000 acres of prospective
undeveloped land in Alberta and Saskatchewan and holds various interests in another 19,000 acres being explored and developed by
others.
Upon completion of the above acquisition, Denison will hold 100% of the Countess field where new processing and water disposal
facilities are scheduled for completion by the end of October and drilling of at least one additional well is planned in the fourth quarter.
Denison will also hold 100% of the Knappen gas field discussed above, other interests in various producing oil and gas properties in
Alberta and Saskatchewan and an inventory of undeveloped land for future evaluation and exploration. Denison's production after the
closing of the Innovative acquisition and after the tie-in of the Knappen well is projected to exceed 650 boe per day.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Revenue in the third quarter included $2,701,000 (2000 - $6,200,000) from uranium sales, $1,140,000 (2000 - $538,000) from
environmental services and $488,000 (2000 - $0) from Canadian oil and gas operations. Prior year oil and gas revenue consisted of
$2,714,000 (2001 - $0) from receipt of Ecuador royalty income.
Uranium sales revenue in the third quarter of 2001 represented 8% of planned annual sales volume (year-to-date 40%) compared with
19% in the third quarter of 2000 and 47% in the first nine months of 2000. This leaves 60% of delivery volumes under long-term
contracts for the fourth quarter of 2001, compared with 53% in the last quarter of 2000. Readers are cautioned that sales volumes will
vary from quarter to quarter depending on the timing of delivery requested on each contract by customers.
Lower uranium sales volumes and the lack of Ecuador royalty income adversely affected segmented earnings in the quarter. Increased
sales volumes and the completion of the Innovative Energy Ltd. purchase will increase earnings in the fourth quarter. Production costs
at the McClean joint venture are largely fixed and sensitive to production volumes. The joint venture participants currently intend to
continue production through to the normal December shutdown, and approximately 6.4 million pounds will be produced.
Liquidity and Cash Resources
Year-to-date operations have generated cash flow of $1.4 million. Repayments of $22.8 million in 2001 have been made on long-term
debt, including $11 million from collection of prior accounts receivable. Borrowings of $21.2 million in 2001 have financed Sue C
mining costs and an increase in uranium concentrate inventory in advance of fourth quarter sales. Mining revenues in 2001 have
benefited from a weakened Canadian dollar. Interest expenses have been reduced as a result of lower Canadian Prime and prepayments
of debt.
Capital expenditures in 2001 of $5.4 million include $4.4 million for investments in Canadian oil and gas assets, with the balance at the
McClean uranium mine and Midwest uranium project. Cash and marketable securities have declined as a result of the Company's
investment in oil and gas assets and net prepayment of $14 million on the Cogema loan facility. As of September 30, 2001, the
Company has the ability to redraw $14.9 million on the Cogema facility for any purpose.
Results for the third quarter do not include results from the planned acquisition of Innovative Resources Ltd., which will be effective
for accounting after the third quarter. In connection with this acquisition, the Company has agreed to issue Common Shares with a
value approximating $1 million. The value of these Denison common shares will be an amount equal to the average closing price at
which common shares have traded on The Toronto Stock Exchange during the 20 trading days following October 4, 2001, subject to
a floor price of $0.125 per share.
Except as discussed herein, risk factors, which may affect the Company, are identified in the Company's annual Management's
Discussion and Analysis section included in the Company's annual report, and remain substantially unchanged.
E. Peter Farmer
President and Chief Executive Officer October 25, 2001
Consolidated Statements of Earnings
Denison Mines Limited
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Nine months ended
Third Quarter September 30
(Unaudited - in thousands 2001 2000 2001 2000
except per share data)
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Revenue $ 4,329 $ 9,452 $ 15,232 $ 22,045
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Expenses
Operating and
exploration costs 2,723 4,332 9,677 10,117
Interest on long-term debt 1,098 1,671 3,496 4,436
General corporate expenses 179 512 1,313 1,739
Investment income (224) (478) (514) (1,160)
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3,776 6,037 13,972 15,132
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Earnings before income
and resource taxes 553 3,415 1,260 6,913
Income and resource taxes
expense (recovery) (55) 1,778 735 3,676
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Net earnings for the period $ 608 1,637 $ 525 $ 3,237
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Net earnings per Common Share:
- Basic $ 0.00 $ 0.00 $ 0.00 $ 0.01
- Fully Diluted (note 5) $ 0.00 $ 0.00 $ 0.00 $ 0.01
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Consolidated Statements Retained Earnings
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Third Quarter Nine months ended
September 30
(Unaudited - in thousands) 2001 2000 2001 2000
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Retained earnings
- beginning of period $ 73,778 $ 67,609 $ 73,861 $ 64,830
Net earnings for the period 608 1,637 525 3,237
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74,386 69,246 74,386 68,067
Benefit of utilizing
previously unrecognized
future tax assets - 1,158 - 2,337
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Retained earnings
- end of period $ 74,386 $ 70,404 $ 74,386 $ 70,404
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The accompanying notes are an integral part of the consolidated
financial statements
Consolidated Statements of Cash
Denison Mines Limited
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Nine months ended
Third Quarter September 30
(Unaudited - in thousands) 2001 2000 2001 2000
------------------------------------------------------------------------
Operating Activities
Net earnings for the period $ 608 $ 1,637 $ 525 $ 3,237
Adjustment for:
Depreciation, depletion
and amortization 1,508 1,669 5,314 5,188
Loss (gain) on sale of assets 38 - (131) (141)
Benefit of utilizing previously
unrecognized future
income tax assets - 1,158 - 2,337
Increase (decrease) in future
income and resource taxes (329) 195 (327) 202
Changes in non-cash working capital:
Decrease (increase) in receivables,
prepaids and inventories (2,390) - 220 (1,869)
Increase (decrease) in accounts
payable, accrued liabilities and
taxes payable 44 (4,088) (3,808) (20,688)
Funding of post employment benefits (126) (115) (358) (315)
Funding of Elliot Lake
mine reclamation (22) (16) (83) (121)
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Net cash generated by
(used in) operations (669) 440 1,352 (12,170)
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Financing Activities
Borrowings on loan facilities 6,538 8,224 21,224 24,057
Repayments of loan facilities (5,256) (7,362) (22,795) (19,267)
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1,282 862 (1,571) 4,790
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Investing Activities
Proceeds on sale of assets 34 58 36 221
Additions to property,
plant and equipment (1,491) (533) (5,365) (1,383)
Sale (purchase) of
marketable securities 1,176 (336) 2,904 1,774
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(281) (811) (2,425) 612
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Increase (Decrease) in Cash
and Cash Equivalents 332 491 (2,644) (6,768)
Cash and Cash Equivalents
- Beginning of Period 2,587 15,875 5,563 23,134
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Cash and Cash Equivalents
- End of Period $ 2,919 $ 16,366 $ 2,919 $ 16,366
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The accompanying notes are an integral part of the consolidated
financial statements
Consolidated Balance Sheets
Denison Mines Limited
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September 30 December 31
(Unaudited - in thousands) 2001 2000
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ASSETS
Current Assets
Cash and cash equivalents $ 2,919 $ 5,563
Marketable securities 110 2,841
Accounts receivable 4,652 13,885
Inventories (note 2) 15,925 7,479
Supplies, prepaid
expenses and other 2,897 2,499
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26,503 32,267
Inventories (note 2) 11,911 11,743
Property, plant and equipment 122,342 122,368
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$ 160,756 $ 166,378
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LIABILITIES
Current Liabilities
Accounts payable and
accrued liabilities $ 4,953 $ 7,480
Current income and
resource taxes payable - 1,281
Current portion of
long-term debt 3,350 11,086
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8,303 19,847
Long-term debt 57,787 51,622
Provision for post-employment
benefits 10,675 11,033
Provision for Elliot Lake
mine reclamation 6,230 6,313
Future income and resource taxes 2,446 2,773
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85,441 91,588
SHAREHOLDERS' EQUITY 75,315 74,790
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$ 160,756 $ 166,378
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Contingent Liability (note 4)
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 September 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. Inventories
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September 30 December 31
2001 2000
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(in thousands)
Uranium concentrates $ 10,187 $ 594
Ore in stockpiles 17,649 18,628
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27,836 19,222
Less: Non-current inventories 11,911 11,743
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$ 15,925 $ 7,479
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3. Long-term Debt
As at September 30, 2001 the Company had made net prepayments of $14,000,000 (December 31, 2000 - $12,000,000) on the
Cogema loan facility and had the ability to redraw $14,936,000 (December 31, 2000 - $12,131,000), upon 45 days' notice,
representing the amount prepaid and resulting interest savings.
4. 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 September 30, 2001 to cover any remaining liabilities in
Greece.
5. Capital Stock
As of October 25, 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 October 25, 2001, 200,000 Common Share Purchase Options were
issued and as a result on October 25, 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 October 25, 2001, the
Company would have 340,266,187 Common Shares issued.
6. Segmented Financial Information
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Nine months ended
Third Quarter September 30
(Unaudited-in thousands) 2001 2000 2001 2000
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Revenue
Mining $ 2,701 $ 6,200 $ 11,021 $ 13,146
Environmental services 1,140 538 1,990 1,348
Oil and gas - Canada 488 - 700 -
- Greece - - - 1,153
- Ecuador - 2,714 1,521 6,398
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4,329 9,452 15,232 22,045
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Operating and Exploration Costs
Mining 1,638 3,758 7,427 8,816
Environmental services 935 578 1,871 1,455
Oil and gas 150 (4) 379 (154)
------------------------------------------------------------------------
2,723 4,332 9,677 10,117
Interest on long-term
debt - mining 1,038 1,639 3,295 4,404
Resource taxes - mining 207 470 843 996
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3,968 6,441 13,815 15,517
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Segment Earnings
Mining (182) 333 (544) (1,070)
Environmental services 205 (40) 119 (107)
Oil and gas 338 2,718 1,842 7,705
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361 3,011 1,417 6,528
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General corporate expenses 179 512 1,313 1,739
Interest on other long-term debt 60 32 201 32
Investment income (224) (478) (514) (1,160)
Income tax expenses (reduction) (262) 1,308 (108) 2,680
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Net earnings $ 608 $ 1,637 $ 525 $ 3,237
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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. Denison Mines Limited is the transfer agent for these securities.
Stock Exchange Listing
Denison's Common Shares are listed and posted for trading on the Toronto Stock Exchange under the symbol DEN.
Registrar and Transfer Agent
Computershare Trust Company of Canada
100 University Avenue
Toronto, Ontario, Canada
M5J 2Y1
Shares are transferable at Computershare's offices in Halifax, Montreal, Toronto, Winnipeg, Calgary and Vancouver.
For information relating to share holdings, lost certificates, estate transfers, etc., or to eliminate duplicate mailings of shareholder
material, contact Computershare at 416-263-9701.
Offices
Corporate
Denison Mines Limited
Atrium on Bay
320 - 40 Dundas Street West
Toronto, ON M5G 2C2
Telephone: 416-979-1991
Telefax: 416-979-5893
Website: www.denisonmines.com
Environmental Services
Denison Environmental Services, a division of
Denison Mines Limited
8 Kilborn Way
Elliot Lake, ON P5A 2T1
Telephone: 705-848-9191
Telefax: 705-848-5814
Website: www.denisonenvironmental.com
Additional Inform |
