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TABLE OF CONTENTS Mar 31 - Apr 6, 2014 Volume 100 Number 7 - 0 comments

Denison bids for JV partner Enexco

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By: Matthew Keevil and Trish Saywell

VANCOUVER — According to chairman Lukas Lundin, Denison Mines (TSX: DML; NYSE-MKT: DNN) aims to be the “pre-eminent exploration company in the Athabasca basin,” and it has taken step in that direction with its friendly all-share bid for joint-venture partner International Enexco (TSXV: IEC; US-OTC: IEXCF).

The offer includes a spin-out of copper assets and values Enexco’s uranium portfolio at $16 million based on Denison’s closing price of $1.74 per share at the time of signing. Denison held 3.6 million shares — or 8.4% — of Enexco before the bid. Enexco shareholders would receive 0.26 of a Denison share for each Enexco share.

Enexco’s primary uranium assets are a 30% interest in the Mann Lake exploration project, and a 20% interest in the Bachman Lake joint venture.

Mann Lake is 25 km southwest of Cameco’s (TSX: CCO; NYSE: CCJ) McArthur River mine and is on trend between Cameco’s Read Lake project and Denison’s 60%-owned Wheeler River project in the eastern Athabasca basin. Enexco holds its interest alongside operator Cameco and French uranium giant Areva, which hold 52.5% and 17.5%.

Cameco started a $3-million, 11,000-metre drill program at Mann Lake earlier this year. In March Enexco announced preliminary results from the program, which were highlighted by 5.1 metres grading 2.31% eU3O8 from 688 metres depth in hole 60.

Denison operates Bachman Lake, 260 km north of La Ronge, Sask. Enexco had earned a 20% interest in the project by funding $500,000 worth of exploration work, with the companies completing 1,900 metres of drilling in 2013 to test the previously identified ML-1 and CR-2 conductors.

Denison uses its Wheeler River camp to support exploration at Bachman Lake, which Denison describes as one of its “highest-priority uranium exploration projects due to its location in the southeast Athabasca basin and the presence of strong conductors, graphitic basement and sandstone alteration.”

At Wheeler River Denison has intersected high-grade, basement-hosted uranium mineralization in a new target area. This new zone, named “Gryphon,” was discovered when hole 556 targeted the downdip extension of weak mineralization in two historic drill holes in the K North area — which lies 3 km northwest of Denison’s resource-stage Phoenix deposit.

From downhole total gamma probe results, the high-grade part of the intersect averages 9.7% eU3O8 over 4.6 metres, using a 1% eU3O8 cut-off grade. The mineralization at Gryphon is 200 metres beneath the sub-Athabasca unconformity, and is open along strike and downdip.

Denison shares rose 6.3%, or 11¢, on 1.6 million shares traded after news of the Enexco bid, and closed at $1.85 per share at press time. The company has 473 million shares outstanding for an $874-million market capitalization.

The spin-out of Enexco’s copper assets would occur under a parallel agreement with Full Metal Minerals (TSXV: FMM; US-OTC: FLMTF) and Choice Gold (CNSX: CHF). Enexco would sell its Contact copper project in Elko County, Nev. — which holds 216 million measured and indicated tonnes grading 0.25% copper — to Choice, while Full Metal would move its Pyramid copper project in Alaska into the new vehicle, with Choice being rebranded as CopperBank Resources.

Full Metal holds a 49% interest in Pyramid alongside Antofagasta (LSE: ANTO; US-OTC: ANFGY). The project hosts 173 million inferred tonnes averaging 0.35% copper and 0.09 gram gold per tonne.

Enexco shareholders would receive 8.8 shares in Copperbank while Full Metal shareholders would receive two shares. In addition, Choice is to complete a financing totalling no less than $2 million for CopperBank, which would feature a board comprised of members from each contributing company board.

Enexco shares shot up 39%, or 15¢, on 564,400 shares traded after the news, en route to a 54¢-per-share close at press time. The two deals represent an offer price of 64¢ per share, or a 63% premium, based on the various closing prices on March 19. Enexco has 40 million shares outstanding for a $21.5-million market capitalization.

Ore production at Cameco’s Cigar Lake uranium mine in Saskatchewan is good news for Denison Mines, which owns 22.5% of the McClean Lake mill, where all of Cigar Lake’s ore will be processed into uranium concentrate.

The McClean Lake mill, 70 km northeast of the Cigar Lake mine, is expected to process ore from the mine by the end of the second quarter of 2014, and is forecast to produce between 2 million and 3 million lb. uranium concentrate in 2014, and ramp up to its full production rate of 18 million lb. by 2018.

In addition to Denison’s stake in the mill — one of the largest uranium-processing facilities in the world — Areva owns 70% and is the operator, and OURD Canada holds the remaining 7.5%.

Colin Healey of Haywood Securities says ore production at Cigar Lake “increases visibility on near-term cash flow potential” for Denison, and points out that the value of Denison’s stake in the mill “has grown significantly over the past few years, as the Cigar Lake joint-venture has carried the majority of the cost of upgrading the mill’s systems and capacity to accommodate Cigar Lake ore.”

Denison’s stake in the mill is also “highly strategic” in Healey’s view, making the company a “highly attractive takeout target, particularly to Cameco,” which has no stake in the mill, but owns 50.025% of Cigar Lake and is the mine’s operator.

Denison’s 60% stake in the high-grade Wheeler River uranium project would be attractive to Cameco because it already owns 30% of the project, the mining analyst reasons.

Denison’s stake in the Waterbury Lake deposit is also likely to be attractive to Cameco, Healey argues, as Waterbury “appears to potentially be an extension of the Roughrider deposit,” which Rio Tinto acquired from Hathor Exploration in 2012.

This year Denison has budgeted $15 million for a 60,000-metre drill program in the Athabasca basin, marking one of its largest exploration programs in several years.  

The drill program is spread over 13 uranium properties, but nearly half of it will focus on Wheeler River, where it plans to drill 27,000 metres and undertake geophysical surveys. Targets include high-grade mineralization extensions at the Phoenix deposit and follow-up drilling on the 489 zone, Phoenix North and the K zone. The Wheeler River exploration program would cost US$8 million, of which Denison’s share is US$4.8 million.

Denison will spread the rest of its drill power across a number of other properties, including 5,000 metres at Bell Lake, 4,000 metres at Moore Lake, 3,550 metres at Crawford Lake, 3,050 metres at Bachman Lake, 2,700 metres at Waterbury Lake, 2,400 metres at Park Creek, 2,100 metres at Hatchet Lake, 4,000 metres at Wolly and 2,700 metres at McClean Lake.  

Outside Canada, Denison has earmarked US$1.8 million for geological mapping and geochemical and trenching programs at its 100%-owned conventional heap-leach Mutanga project in Zambia, and US$1 million on restructuring its Gurvan Saihan joint venture in Mongolia to meet the requirements of the country’s nuclear energy law. Denison owns an 85% stake in the in-situ recovery joint-venture project.

Denison also owns an 80% interest in the Dome project in Namibia and 100% of the conventional uranium–copper–silver Falea deposit in Mali, picked up through its acquisition of Rockgate Capital in early 2014. 

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