Denison Mines won't pay premium for undeveloped uranium properties, CEO says
April 18, 2007 - 16:57
By: LAURA BOBAK
TORONTO (CP) - Uranium producer Denison Mines Corp. (TSX:DML) says it continues to seek acquisitions but won't buy properties in early development that carry a stiff price in today's heated market.
CEO Peter Farmer told the company's annual meeting on Wednesday that the current uranium spot price of US$113 a pound, the highest it's been since the 1970s, is not sustainable for the long term.
"We are looking for more uranium prospects and are talking to several parties," Farmer said after giving shareholders an update on the company's operations, which include mines in Canada and exploration, mine decommissioning and other activities in the United States, Mongolia, Zambia and Australia.
In Canada, the Toronto company owns a 22.5 per cent stake in the McClean Lake uranium mine and more than 25 per cent of the Midwest project, both in northern Saskatchewan, one of the world's leading uranium-producing regions.
"Although we believe that the uranium market will be stronger than it was as recently as last year, and that in the short term we will likely see further price escalation, we do not believe prices will be sustained over the longer term. So we will not acquire assets that require development over a number of years and are priced in the context of today's market," Farmer said.
"We believe that as a producer, with capacity and production that has not been pre-sold - together with our experience and reputation - we will be able to consummate acquisitions that are reasonable and fair."
The comments may have been a reference to Denison's recent unsuccessful attempts to take control of Australia's OmegaCorp. OmegaCorp's Kariba project in Zambia is not expected to be in production until 2010.
Last Friday, Denison said it was considering a sale of its one-third ownership in OmegaCorp., following a recent buyout offer by Central African Mining and Exploration Co.
The all-stock offer by CAMEC would have been a 25 per cent premium, at A$1.44, to what Denison paid following its partially successful offer to acquire all of OmegaCorp. Denison, which currently owns 51 million shares, or about 33 per cent, bought for A$1.15 each, would not raise its bid.
Denison, which posted a net loss of $17 million in 2006, said it expects 2007 production to be about 700,000 pounds of uranium, which is used as fuel in nuclear power plants. It has a production goal of five million pounds by 2010.
The estimate doesn't include the potential of projects underway in Mongolia and Zambia, Farmer said.
The company aims to improve production in particular at Saskatchewan's McClean Lake, which Farmer called "disappointing."
As uranium companies around the world race to profit from high spot prices caused by a tight supply of uranium "yellowcake," Farmer said Denison will ramp up production in North America "as quickly and safely as we can."
Several factors boosting demand for uranium include:
-Floods that have recently halted production at several mines including Cameco Corp.'s Cigar Lake mine (TSX:CCO) in Saskatchewan, the world's largest uranium supplier;
-A three-decade halt in mine development caused by a global glut of uranium from decommissioned Russian nuclear weapons; Russia has said it won't continue exports of the material, once the original 10-year arms-control agreement expires.
-Speculators, including hedge funds, buying uranium to store in the expectation of more price hikes.
Some uranium producers have also been affected by a trend among utilities to exercise negotiated rights to extend their contracts by purchasing uranium at prices much lower than current market prices.
Farmer said Denison is locked into the sale of 220,000 pounds of uranium at less than current market value. Uranium was about US$70 per pound last fall.
Neal Froneman, CEO of SXR Uranium One (TSX:SXR), said in a recent interview he expects uranium prices will rise to US$150 a pound by the end of 2007, and forecasts global demand for uranium to increase by 2.5 per cent annually over the next decade.
Froneman, who led the South Africa-based SXR Uranium One into a merger with UrAsia Energy Ltd. (TSXV:UUU) of Vancouver, said China alone is building 30 of the 100 new nuclear reactors being planned or built worldwide. There are currently 440 reactors around the globe.
The recent frenzied global interest in nuclear power - fuelled partly by concerns about climate change caused by other traditional energy sources - was a key factor that inspired the merger of former Denison Mines Inc. with International Uranium Corp.
The two companies formally united on Dec. 1, a marriage that Farmer said has "gone very well."
"Our balance sheet is extremely strong," he said, adding the company has "effectively no debt."
Asked by a shareholder when the company would be profitable, Farmer said the company has not made any public projections. He also said that after the merger all assets were re-evaluated at market value, and that depreciation will affect future profit.
The key will be to watch for improvements in cash flow, Farmer said.
Denison's assets include an interest in two of North America's four licensed and operating uranium mills, including full ownership of the White Mesa mill in Utah.
Exploration projects include properties near Denison's mills in the Athabasca Basin in Saskatchewan and in the Colorado Plateau, Henry Mountain and Arizona Strip regions of the southwestern United States.
Farmer also said the company plans to expand its work in mine decommissioning and environmental services through its Denison Environmental Services division.
The company also manages the publicly traded Uranium Participation Corp. (TSX:U), which invests in uranium oxide in concentrates and uranium hexafluoride.
On Thursday, Denison is to begin trading on the American Stock Exchange under the ticker DNN.
Denison shares closed down 48 cents, or 3.3 per cent, to $13.88 on the Toronto stock exchange Wednesday.
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