maintenance, Denison, Year end results
Denison Mines Ltd DEN
Shares issued 317,871,201 Mar 18 close $0.28
Thu 19 Mar 98 Company Review
Mr E. Peter Farmer reviews the company
In 1997 the company had a year of new beginnings. In the company's oil
division, the completion of large 3D seismic programs in the Prinos and
White Rose areas laid the foundations for new exploration and delineation
drilling on its oil properties. In the mining division, the process plant
at McClean was commissioned, preparing Denison for the start of new uranium
production scheduled for late 1998 and mining exploration activities at
Sagar, Wheeler and in Nevada highlight increasing efforts to locate the
next commercial ore body for Denison. Denison's long history of uranium
mining at Elliot Lake is coming to an end as the company is completing all
capital works this year and beginning the final phase of decommissioning
this facility.
Greek Oil and Gas Operations
Active exploration of the areas south and west of the Prinos and Prinos
North producing fields is the principal focus of the company's continuing
Greek operations. In mid 1997, two independent consultants re-examined all
existing seismic and drilling data in an effort to locate potential new
exploration targets and to determine what additional 3D seismic would be
appropriate to enable the company to fully evaluate that portion of its
lease area that lies west of Thassos Island. The company's exploration area
east of Thassos remains closed at this time due to continuing territorial
disputes between Greece and Turkey.
As a result of these independent reviews, a new 155 sq km 3D seismic
program was carried out late in the year. The processing and interpretation
of the acquired data is presently under way in Houston. Preliminary
indications show several prospects which will be evaluated as potential
exploration drilling targets. Subject to final technical and economic
review of all available data, drilling on one or more of these structures
could take place in 1998.
If this new drilling is successful, the new fields would be developed as
satellites to the existing production facilities now serving the Prinos and
Prinos North fields and will further extend the producing life of those
fields.
Denison's net share of production from Greece for 1997 totalled 2.1 million
barrels of oil and condensate 31,000 tonnes of sulphur and 111 million
cubic feet of natural gas. This represents a decline in oil production from
1996 of about 15%. The decrease in production volumes was a result of
normal field decline and an unexpected increase in the water cut from the
Prinos North well.
During 1997, to reduce costs, the Athens office was closed and non-union
staff reduced. Negotiations with the union are continuing.
The weighted average price of Prinos crude in 1997 was US$16.60 per barrel
compared with US$18.97 per barrel in 1996. By early 1998, crude prices had
declined substantially from the average levels of 1997, reaching their
lowest levels in more than four years.
Denison's share of proved and product, reserves in the Prinos and Prinos
North fields at December 31 1997 was 4.6 million barrels of crude and
condensate. The ability to recover these remaining reserves will depend
upon improved crude prices, the ability to further reduce operating costs
and to maintain a sufficiently high production rate. If any new fields
discovered from the exploration drilling are placed into production, the
life of Prinos and Prinos North fields will be extended and additional
crude may be recovered in excess of the reserves shown above.
Other Oil and Gas Interests
White Rose Oil Field
Following the purchase of an additional 1.26% interest during 1997, Denison
holds a 3.78% interest in the White Rose oil field offshore Newfoundland in
eastern Canada. This field, estimated to contain 250 million barrels of
recoverable crude, is in the Jeanne d'Arc basin in the Grand Banks about
350km east of St John's near the Hibernia and Terra Nova fields.
The White Rose consortium participated in a regional 3D seismic program in
mid 1997, together with the holders of the other major fields in the area.
Processing and interpretation of this seismic is expected to be completed
in the first part of 1998.
The first well in the delineation and evaluation, program for the White
Rose field is expected to be spudded in mid 1998, to be followed by
additional drilling in 1999. Depending on the results of this program, full
field production could begin as early as 2003.
Ecuador
Development work has begun on the Villano field on the 494,000 acre oil
exploration permit in Ecuador where Denison holds a royalty interest. This
field is in the southeastern part of the Oriente basin and is estimated to
contain recoverable oil reserves of 160 million barrels.
In addition to the drilling of a number of wells, this development work
will include the construction of a pipeline to connect the field to the
Transecuadorian pipeline 130km away. First production from this field is
expected in early 1999.
Denison holds a royalty interest equal to 3% of future cash flow from the
permit up to a maximum of US$7.8 million.
Saskatchewan Uranium Development
The development of Denison's uranium interests in Saskatchewan began with
the production decision taken by Denison and its joint venture partners in
March 1995 to place the McClean Lake uranium project in northern
Saskatchewan into production.
The construction and commissioning of the process facilities and related
infrastructure were completed in 1997. The ore from the JEB pit has been
mined and stockpiled to provide the initial feed to the milling facilities.
The JEB pit will be converted into the JEB tailings management facility for
the disposition of mill tailings. The company believes that as a result of
the efforts made and information provided to the regulatory authorities,
the necessary regulatory permission to construct the JEB tailings
management facility in time to complete 12 weeks of construction in a frost
free environment should be given. The other necessary regulatory approvals
to operate the facility and the mill should be obtained in time to begin
production from this project early in the fourth quarter of 1998.
Stripping of the Sue C deposit is now under way and the delivery of the
higher grade ore from this deposit will supplement the ore from the JEB
pit. The McClean Lake processing facilities, with a nominal design capacity
of 6 million pounds of U3O8 per year, could produce at higher levels during
the initial years because of the availability of higher grade ore from the
Sue C deposit. Current reserves at McClean and Midwest are sufficient to
support a 14 year project life.
The joint federal/provincial panel on uranium mining development in
Northern Saskatchewan completed its review of the Midwest uranium project
during 1997. In the panel's report, it was recommended that the Midwest
project be allowed to proceed subject to certain specified conditions
including the licencing and placing into operation of the JEB tailings
management facility where it is proposed that all tailings from the milling
of Midwest ore will be deposited. It is anticipated that the response of
the federal and provincial government to the panel's recommendations will
be issued in early 1998.
As a result of the agreement in principle, which was reached with the Cigar
Lake joint venture in September 1995, it is planned that the McClean Lake
process facilities will be expanded from a design capacity of 6 million
pounds per year of U3O8 to a total of 24 million pounds to enable all ore
from the nearby Cigar Lake project to be milled at this central processing
facility. The implementation of this agreement, which is subject to the
necessary regulatory approvals, a production decision by the Cigar Lake
owners and the entering into of definitive documentation, will provide
significant economic benefits to Denison and its partners in the McClean
Lake project through economics of scale and reduced capital costs. The
reduced environmental impact from operating a single tailings management
facility instead of two separate facilities is an added benefit.
The joint federal/provincial panel on uranium mining development in
Northern Saskatchewan, in its report issued late in 1997, recommended that
the Cigar Lake project be allowed to proceed. Cigar Lake owners are
awaiting the decisions of the federal and provincial authorities concerning
the recommendations of the panel. It is expected that the finalization of
the definitive documentation will take place when the above mentioned
decisions are received.
Denison has a 22.5% interest in the McClean Lake uranium project and a
19.5% interest in the nearby Midwest uranium project. Cogema Resources, a
subsidiary of Compagnie Generale de Matieres Nucleaires of France is the
operator/manager for both projects. Denison and Cogema are jointly
marketing their production from these two projects to uranium customers
throughout the world.
Elliot Lake Reclamation
Decommissioning and rehabilitation of the Elliot Lake properties continued
in 1997. Dam construction and cleanup began on the Stanrock tailings
management area which is the final project in the reclamation effort. The
applications for the decommissioning licence for Stanrock and for
amendments to the existing Denison licence have been made to the Atomic
Energy Control Board. The reclamation plans in the licence applications are
those presented in the environmental impact statement modified to address
concerns and recommendations of the Federal Environmental Assessment Review
Panel and the government's response to the panel report.
In 1997 the tailings in the area downstream of TMA3 were cleaned up and
removed to permanent storage. Dam structures were raised and reinforced to
increase settling capacity and to provide one metre of water cover over the
tailings and effluent residues. Permanent spillways and monitoring flumes
were installed.
On the western perimeter of the tailings storage basin for TMA3, three
temporary dams were replaced with engineered, till core, permanent
structures designed to confine the tailings over the very long term.
Surface preparation for the final dam on the south flank is nearly complete
in anticipation of the 1998 construction season. A network of roads over
top of the tailings was started in the late fall which, when completed in
early 1998, will allow easy access for the equipment needed to condition
and seed the tailings surface. All capital works, including dam and water
treatment plant construction, and revegetation of the tailings surface,
will be completed in 1998.
At the Denison site, work was limited to miscellaneous cleanup of areas
identified in a final post reclamation survey carried out in the summer
months. It is important to note that the water outflow from the
rehabilitated tailings areas of Long Lake and Williams Lake required only a
minimum amount of treatment during the first year after all tailings were
placed under one metre of water cover.
Expenditures at Elliot Lake in 1997 were $7.4 million. To December 31 1997
a total of $42.5 million has been spent on rehabilitation. The estimated
future cost to complete the capital works for the reclamation program after
January 1 1998 is $5.6 million, all of which is on deposit in the
reclamation trust. Additional costs for perpetual care are estimated at
$400,000 per year for the initial years gradually reducing to $100,000 each
year.
Mineral Exploration Activities
Denison was actively involved in exploration during 1997, and will continue
to focus in 1998 on the search for and discovery of low cost ore deposits.
Through joint ventures, Denison explores primarily for uranium and gold in
a variety of geologic terrains. Denison is working on a well property in
the Athabasca basin for unconformity-hosted uranium deposits. Denison also
is participating in a major exploration program with Inmet Mining targeting
large copper gold uranium deposits in the Labrador trough of northern
Quebec. In addition, work has started on a gold exploration program in the
Great basin of Nevada.
Wheeler River
The Wheeler River joint venture is a 40% owned project between the Key Lake
and McArthur River ultra high grade uranium deposits in the Athabasca
basin, host to 32% of current world production. This large 18,600 hectare
property has been continually explored since 1978, with 127 holes drilled
on electromagnetic conductors near the unconformity. The average 500 metre
drill depth to the target area predicates that exploration must necessarily
involve a combination of geological, geophysical and geochemical methods,
but the high grade nature of discoveries in this basin justifies the
persistent effort. Seven holes were drilled in 1997 with a further seven
targeted for 1998.
Sagar Project
Denison is earning a 25% interest in the Sagar project in the Labrador
trough area of northern Quebec. It is receiving attention after very high
grade gold uranium boulders were discovered in the northern part of the
property, justifying exploration in this remote region. Work during 1997
involved a helicopter supported regional gravimetric survey, prospecting,
sampling and the completion of six diamond drill holes. All this work was
carried out to define targets and prepare for an intensive diamond drill
program planned for 1998.
This program will drill test a favourable geologic contact in an attempt to
locate a structurally related source of the high grade boulders.
Nevada Great Basin
A joint venture program in which Denison has a 51% interest was begun late
in 1997, and is continuing in 1998, targeting pediment covered sediment
hosted gold deposits in Nevada. This grass roots program is being conducted
by seasoned Nevada explorationists in and around areas that are considered
prospective for high grade gold deposits. A 3,700 metre drill program is
planned during 1998 on selected sites.
Sulphide Lake
After a compilation of all previous drill holes on this 37% owned project,
several holes were drilled in 1997 to test for strike and dip extensions of
the drill indicated mineralization. Although the favourable geology was
intersected and alteration was locally strong, the values returned were
insufficient to justify continuing exploration. The joint venture is
evaluating its options with respect to the future of this property.
STATEMENT OF EARNINGS
Year ended December 31
($ 000s)
1997 1996
Revenue $ 73,116 $ 88,935
-------- --------
Operating and
exploration costs 52,422 56,929
Decrease in
provision for
Elliot Lake
mine de-
commissioning
and reclamation
costs - (14,358)
General corporate
expenses 3,199 3,096
Amortization of
debt discount 345 1,630
Gain on purchase
of long term
debt (8,495) (5,400)
Investment
income (2,104) (3,410)
-------- --------
45,367 38,487
-------- --------
Earnings before
income and
mining taxes 27,749 50,448
Income and
mining taxes 2,014 325
-------- --------
Net earnings
for the year $ 25,735 $ 50,123
======== ========
Earnings per
share $0.08 $0.16
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