Denison Mines (DNN) 6-KInterim Consolidated Financial Statements

Denison Mines Corp. (“DMC”) and its subsidiary companies and joint arrangements (collectively, “Denison” or the “Company”) are engaged in uranium mining related activities, which can include acquisition, exploration, and development of uranium bearing properties, extraction, processing and selling of, and investing in uranium.

The Company has an effective 95.0% interest in the Wheeler River Joint Venture (“WRJV”), a 67.41% interest in the Waterbury Lake Uranium Limited Partnership (“WLULP”), a 22.5% interest in the McClean Lake Joint Venture (“MLJV”) (which includes the McClean Lake mill) and a 25.17% interest in the Midwest Joint Venture (“MWJV”), each of which are located in the eastern portion of the Athabasca Basin region in northern Saskatchewan, Canada. The McClean Lake mill is contracted to provide toll milling services to the Cigar Lake Joint Venture (“CLJV”) under the terms of a toll milling agreement between the parties (see note 12). In addition, the Company has varying ownership interests in several other development and exploration projects located in Saskatchewan, Canada.

Through its 50% ownership of JCU (Canada) Exploration Company, Limited (“JCU”), Denison holds further indirect interests in various uranium project joint ventures in Canada, including the Millennium project (JCU 30.099%), the Kiggavik project (JCU 33.8118%) and the Christie Lake project (JCU 34.4508%). See note 8 for details.

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting. The condensed interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2022. The Company’s presentation currency is Canadian dollars (“CAD”).

These financial statements were approved by the board of directors for issue on November 8, 2023.

The significant accounting policies followed in these condensed interim consolidated financial statements are consistent with those applied in the Company’s audited annual consolidated financial statements for the year ended December 31, 2022.

The Company has considered the amendments to IAS 1: Presentation of Financial Statements, IAS 8: Accounting Policies, Changes in Account Estimates and Errors, IAS 12: Income Taxes and IFRS 17: Reporting Standard for Insurance Contracts, which are effective for annual periods beginning on or after January 1, 2023 and has concluded that these amendments have no impact on the Company’s condensed interim consolidated financial statements.

 

The cash and cash equivalent balance consists of:

The trade and other receivables balance consists of:

The inventories balance consists of:

The investments balance consists of:

The investments continuity summary is as follows:

At September 30, 2023, the Company holds equity instruments consisting of shares and warrants in publicly traded companies and no debt instruments. Non-current equity instruments consist of warrants in publicly traded companies exercisable for a period more than one year after the balance sheet date.

The investment in joint venture balance consists of:

A summary of the investment in JCU is as follows:

JCU is a private company that holds a portfolio of twelve uranium project joint venture interests in Canada, including a 10% interest in the WRJV, a 30.099% interest in the Millennium project (Cameco Corporation 69.901%), a 33.8118% interest in the Kiggavik project (Orano Canada Inc. 66.1882%), and a 34.4508% interest in the Christie Lake project (UEC 65.5492%).

During the nine months ended September 30, 2023, each shareholder of JCU funded operations with an investment in JCU of $1,979,000. The investment was made by share subscription, where each shareholder acquired additional common shares in JCU in accordance with each shareholder’s pro-rata ownership interest in JCU. As a result, the Company’s ownership interest in JCU remained unchanged at 50%.

The following tables summarize the consolidated financial information of JCU on a 100% basis, taking into account adjustments made by Denison for equity accounting purposes (including fair value adjustments and differences in accounting policies). Denison records its equity share of earnings (loss) in JCU one month in arrears (due to the information not yet being available), adjusted for any known material transactions that have occurred up to the period end date on which Denison is reporting.

The Company has certain restricted cash and investments deposited to collateralize a portion of its reclamation obligations. The restricted cash and investments balance consists of:

At September 30, 2023 investments consist of guaranteed investment certificates with maturities of less than 90 days.

During the nine months ended September 30, 2023 the Company deposited an additional $864,000 into the Elliot Lake reclamation trust fund and withdrew $699,000.

At September 30, 2023, the Company has $7,972,000 on deposit with Bank of Nova Scotia (“BNS”) as pledged restricted cash and investments pursuant to its obligations under the letters of credit facility (see notes 14 and 16).

The property, plant and equipment (“PP&E”) continuity summary is as follows:

The Company has a 22.5% interest in the McClean Lake mill through its ownership interest in the MLJV. The carrying value of the mill, comprised of various infrastructure, building and machinery assets, represents $54,149,000, or 76.0%, of the September 30, 2023 total carrying value amount of owned Plant and Equipment assets.

The additions to PP&E during the nine months ended September 30, 2023 primarily relate to interests in mineral properties acquired in the period and renovations to an office building in Saskatoon.

The Company has included the cost of various right-of-use (“ROU”) assets within its plant and equipment ROU carrying value amount. These assets consist of building, vehicle and office equipment leases. The majority of the asset value is attributable to the building lease assets for the Company’s office in Toronto and warehousing space in Saskatoon.

As at September 30, 2023, the Company has various interests in development, evaluation and exploration projects located in Saskatchewan, Canada, which are either held directly, or through contractual arrangements. The properties with significant carrying values are Wheeler River, Waterbury Lake, Midwest, Mann Lake, Wolly, Johnston Lake and McClean Lake, which together represent $163,119,000, or 90.9%, of the total mineral properties carrying value as at September 30, 2023.

During the nine months ended September 30, 2023, the Company entered into and completed an agreement to sell its 100% interest in the South Dufferin property to Skyharbour Resources Ltd (“Skyharbour”) in exchange for $125,000 in cash, 6,000,000 Skyharbour common shares, and 1,000,000 Skyharbour warrants with an exercise price of $0.60 and a 24 months term, for total consideration of $2,541,000 and a gain on sale of $1,299,000.

The accounts payable and accrued liabilities balance consists of:

The deferred revenue balance consists of:

The deferred revenue liability continuity summary is as follows:

In February 2017, Denison closed an arrangement with Ecora, formerly named Anglo Pacific Group PLC, under which Denison received an upfront payment in exchange for its right to receive specified future toll milling cash receipts from the MLJV under the current toll milling agreement with the CLJV from July 1, 2016 onwards. The up-front payment was based upon an estimate of the gross toll milling cash receipts to be received by Denison.

The Ecora Arrangement represents a contractual obligation of Denison to pay onward to Ecora any cash proceeds of future toll milling revenue earned by the Company related to the processing of the specified Cigar Lake ore through the McClean Lake mill. The deferred revenue balance represents a non-cash liability, which is adjusted as any toll milling revenue received by Denison is passed through to Ecora, or any changes in Cigar Lake Phase 1 and Phase 2 tolling milling production estimates are recognized.

 

Under IFRS 15, Revenue from Contracts with Customers, the change in the estimated timing of the toll milling of the CLJV ore resulted in a decrease to the implied financing component of the toll milling transaction, decreasing the total deferred revenue to be recognized over the life of the toll milling contract, as well as the deferred revenue drawdown rate. The updated drawdown rate has been applied retrospectively to all pounds produced for the CLJV since the inception of the Ecora arrangement, resulting in the current period negative true-up.

During the nine months ended September 30, 2023, the Company recognized accretion expense of $2,726,000, including a true-up adjustment of $452,000 due to the change in the estimated timing of milling of the Cigar Lake ore (September 30, 2022 $1,919,000 including a negative $297,000 true up adjustment).

The current portion of the deferred revenue liability reflects Denison’s estimate of Cigar Lake toll milling over the next 12 months. This assumption is based on current mill packaged production expectations and is reassessed on a quarterly basis.

The post-employment benefits balance consists of:

The post-employment benefits continuity summary is as follows:

The Elliot Lake uranium mine was closed in 1992 and capital works to decommission this site were completed in 1997. The Company is responsible for monitoring the Tailings Management Areas at the Denison and Stanrock sites and for treatment of water discharged from these areas.

Spending on restoration activities at the Elliot Lake site is funded by the Elliot Lake Reclamation Trust fund (see note 9).

Under the Saskatchewan Mineral Industry Environmental Protection Regulations (1996), the Company is required to provide its pro-rata share of financial assurances to the province of Saskatchewan relating to future decommissioning and reclamation plans that have been filed and approved by the applicable regulatory authorities. Accordingly, as at September 30, 2023, the Company has provided irrevocable standby letters of credit from a chartered bank in favour of the Saskatchewan Ministry of Environment, totalling $22,972,000, which relate to the most recently filed reclamation plan dated November 2021.

The Company’s exploration and evaluation activities, including those related to Wheeler River, are subject to environmental regulations as set out by the government of Saskatchewan. Accordingly, as at September 30, 2023, the Company has provided irrevocable standby letters of credit from a chartered bank in favour of the Saskatchewan Ministry of Environment, totalling $992,000, which relate to the most recently filed reclamation plan dated December 2022. In the nine months ended September 30, 2023, the Company received a deposit of $99,000 from its joint venture partner to cover its share of the required letters of credit.

In connection with the public offerings of units in February 2021 and March 2021, the Company issued 15,796,975 and 39,215,000 share purchase warrants to unit holders, respectively. The February 2021 warrants entitled the holder to acquire one common share of the Company at an exercise price of US$2.00 for 24 months after issuance (expired February 2023). The March 2021 warrants entitled the holder to acquire one common share of the Company at an exercise price of US$2.25 for 24 months after issuance (expired March 2023).

Since these warrants were exercisable in USD, which differs from the Company’s CAD functional currency, they were classified as derivative liabilities and were required to be carried as liabilities at Fair Value Though Profit or Loss. When the fair value of the warrants was revalued at each reporting period, the change in the liability was recorded through net profit or loss in “Other income (expense)”. At December 31, 2022, the fair value of the share purchase warrants were estimated to be $nil.

In February 2023, the outstanding share purchase warrants issued to unit holders expired.

In March 2023, the outstanding share purchase warrants issued to unit holders expired.

The other liabilities balance consists of:

At September 30, 2023, the Company’s debt obligations are comprised of lease and loan liabilities. The debt obligations continuity summary is as follows:

The following table outlines the Company’s scheduled maturities of its debt obligations at September 30, 2023:

In December 2022, the Company entered into an agreement with BNS to amend the terms of the 2022 Credit Facility to extend the maturity date to January 31, 2024 (“2023 Credit Facility”) and to increase the credit available under the facility by $992,000 to cover additional standby letters of credit with respect to environmental obligations associated with the Feasibility Field Test activities at Wheeler River. All other terms of the 2023 Credit Facility (tangible net worth covenant, investment amounts, pledged assets and security for the facility) remain unchanged by the amendment and the 2023 Facility remains subject to letter of credit and standby fees of 2.40% (0.40% on the $7,972,000 covered by pledged cash collateral) and 0.75% respectively. During the nine months ended September 30, 2023, the Company incurred letter of credit fees of $320,000 (September 30, 2022 - $287,000).

At September 30, 2023, the Company is in compliance with its facility covenants and has access to letters of credit of up to $23,964,000 (December 31, 2022 - $23,964,000). The facility is fully utilized as collateral for non-financial letters of credit issued in support of reclamation obligations for the MLJV, MWJV and Wheeler River (see note 14).

Denison is authorized to issue an unlimited number of common shares without par value. A continuity summary of the issued and outstanding common shares and the associated dollar amounts is presented below:

On September 16, 2021, the Company filed a short form base shelf prospectus with the securities’ regulatory authorities in each of the provinces and territories in Canada and a registration statement on Form F-10 in the United States (“2021 Shelf Prospectus”) to qualify the issuance of securities up to an aggregate offering amount of $250,000,000 during the 25-month period ended on October 16, 2023.

On September 28, 2021, Denison entered into an equity distribution agreement providing for an At-the-Market (“ATM”) equity offering program qualified by a prospectus supplement to the 2021 Shelf Prospectus (“2021 ATM Program"). The 2021 ATM Program allowed Denison, through its agents, to, from time to time, offer and sell, in Canada and the United States, such number of common shares as would have an aggregate offering price of up to US$50,000,000. The 2021 ATM Program was terminated on October 11, 2023.

During the nine months ended September 30, 2023, the Company issued 19,786,160 shares under the 2021 ATM Program. The common shares were issued at an average price of $1.91 per share for aggregate gross proceeds of $37,887,000. The Company also recognized issue costs of $845,000 related to these ATM share issuances, which include $757,000 of commissions and $88,000 associated with the maintenance of the 2021 Shelf Prospectus and 2021 ATM Program.

In total, as at September 30, 2023, the Company has issued 34,669,322 shares under the 2021 ATM Program for aggregate gross proceeds of $66,062,000. The common shares were issued at an average price of $1.91. The Company also recognized total issue costs of $2,192,000 related to its ATM share issuances which includes $1,321,000 of commissions and $871,000 associated with the set-up and maintenance of the 2021 Shelf Prospectus and 2021 ATM Program.

Refer to note 25 for additional details.

The Company’s share-based compensation arrangements include share options, restricted share units (“RSUs”) and performance share units (“PSUs”).

Share-based compensation is recorded over the vesting period, and a summary of share-based compensation expense recognized in the statement of income (loss) is as follows:

An additional $2,913,000 in share-based compensation expense remains to be recognized, up until August 2026, on outstanding share options and share units at September 30, 2023.

Share options granted in 2023 vest over a period of three years. A continuity summary of the share options granted under the Company’s Share Option Plan is presented below:

A summary of the Company’s share options outstanding at September 30, 2023 is presented below:

Share options outstanding at September 30, 2023 expire between March 2024 and August 2028.

The fair value of each share option granted is estimated on the date of grant using the Black-Scholes option pricing model. The following table outlines the assumptions used in the model to determine the fair value of share options granted:

RSUs granted under the Share Unit Plan in 2023 vest ratably over a period of three years.

The fair value of each RSU and PSU granted is estimated on the date of grant using the Company’s closing share price on the day before the grant date.

The accumulated other comprehensive income balance consists of:

The components of Operating expenses are as follows:

The components of Other income are as follows:

A summary of employee benefits expense recognized in the statement of income (loss) is as follows:

The change in non-cash operating working capital items in the consolidated statements of cash flows is as follows:

The Company operates in three primary segments – the Mining segment, the Closed Mine Services segment and the Corporate and Other segment. The Mining segment includes activities related to exploration, evaluation and development, mining, milling (including toll milling) and the sale of mineral concentrates. The Closed Mine Services segment includes the results of the Company’s mine decommissioning and other services provided to third parties. The Corporate and Other segment includes general corporate expenses not allocated to the other segments.

For the nine months ended September 30, 2023, reportable segment results were as follows:

For the three months ended September 30, 2023, reportable segment results were as follows:

For the nine months ended September 30, 2022, reportable segment results were as follows:

For the three months ended September 30, 2022, reportable segment results were as follows:

Denison and KHNP Canada (which is an indirect subsidiary of KEPCO through KHNP) are parties to a strategic relationship agreement (the “KHNP SRA”). The KHNP SRA provides for a long-term collaborative business relationship between the parties, which includes a right of KHNP Canada to nominate one representative to Denison’s Board of Directors, provided that its shareholding percentage stays above 5%.

KHNP Canada is also the majority member of Korea Waterbury Lake Uranium Limited Partnership, which is a consortium of investors that holds the non-Denison owned interests in Waterbury Lake Uranium Corporation and WLULP, entities whose key asset is the Waterbury Lake property.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel includes the Company’s executive officers, vice-presidents and members of its Board of Directors.

The following compensation was awarded to key management personnel:

IFRS requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are:

The fair value of financial instruments which trade in active markets, such as share and warrant equity instruments, is based on quoted market prices at the balance sheet date. The quoted market price used to value financial assets held by the Company is the current closing price. Warrants that do not trade in active markets have been valued using the Black-Scholes pricing model. Debt instruments have been valued using the effective interest rate for the period that the Company expects to hold the instrument and not the rate to maturity.

Except as otherwise disclosed, the fair values of cash and cash equivalents, trade and other receivables, accounts payable and accrued liabilities, restricted cash and cash equivalents and debt obligations approximate their carrying values as a result of the short-term nature of the instruments, the variable interest rate associated with the instruments or the fixed interest rate of the instruments being similar to market rates.

During 2023 and 2022, there were no transfers between levels 1, 2 and 3 and there were no changes in valuation techniques.

The following table illustrates the classification of the Company’s financial assets and liabilities within the fair value hierarchy as at September 30, 2023 and December 31, 2022:

Investments in uranium are categorized in Level 2. Investments in uranium are measured at fair value at each reporting period based on the month-end spot price for uranium published by UxC and converted to Canadian dollars during the period-end indicative foreign exchange rate.

The Company is involved, from time to time, in various legal actions and claims in the ordinary course of business. In the opinion of management, the aggregate amount of any potential liability is not expected to have a material adverse effect on the Company’s financial position or results.

In October, 2023 the Company committed to and completed a $15,000,000 strategic investment in F3 Uranium Corp. (“F3”) in the form of unsecured convertible debentures (the “Debentures”). The Debentures carry a 9% coupon (the “Interest”), payable quarterly over a 5-year term and will be convertible at Denison’s option into common shares of F3 at a conversion price of $0.56 per share (the “Conversion Price”). F3 has, at its sole discretion, the right to pay up to one-third of the Interest in common shares of F3 issued at a price per common share equal to the volume weighted average share price of F3’s common shares on the TSX Venture Exchange for the 20 trading days ending on the day prior to the date on which such payment of Interest is due. F3 will also have certain redemption rights on or after the third anniversary of the date of issuance of the Debentures and/or in the event of an F3 change of control.

On October 16, 2023, the Company closed a bought deal public offering (the “Offering”) of 37,000,000 common shares at a price of US$1.49 per share, for total gross proceeds of $75,082,000 (US$55,130,000).