Exhibit 99.1 INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited - Expressed in thousands of Canadian dollars (“CAD”) except for share amounts) | ||||||
At June 30 2021 | At December 31 2020 | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents (note 4) | $ | 84,852 | $ | 24,992 | ||
Trade and other receivables (note 5) | 4,639 | 3,374 | ||||
Inventories (note 6) | 3,016 | 3,015 | ||||
Investments-equity instruments (note 7) | 21,847 | 16,657 | ||||
Prepaid expenses and other | 786 | 1,373 | ||||
115,140 | 49,411 | |||||
Non-Current | ||||||
Inventories-ore in stockpiles (note 6) | 2,098 | 2,098 | ||||
Investments-equity instruments (note 7) | 245 | 293 | ||||
Investments-uranium (note 7) | 91,510 | - | ||||
Prepaid expenses and other | 312 | - | ||||
Restricted cash and investments (note 8) | 12,336 | 12,018 | ||||
Property, plant and equipment (note 9) | 256,484 | 256,870 | ||||
Total assets | $ | 478,125 | $ | 320,690 | ||
LIABILITIES | ||||||
Current | ||||||
Accounts payable and accrued liabilities (note 10) | $ | 17,069 | $ | 7,178 | ||
Current portion of long-term liabilities: | ||||||
Deferred revenue (note 11) | 4,656 | 3,478 | ||||
Post-employment benefits (note 12) | 120 | 120 | ||||
Reclamation obligations (note 13) | 802 | 802 | ||||
Other liabilities (note 15) | 234 | 262 | ||||
22,881 | 11,840 | |||||
Non-Current | ||||||
Deferred revenue (note 11) | 32,786 | 33,139 | ||||
Post-employment benefits (note 12) | 1,192 | 1,241 | ||||
Reclamation obligations (note 13) | 37,870 | 37,618 | ||||
Share purchase warrants liability (note 14) | 19,066 | - | ||||
Other liabilities (note 15) | 387 | 375 | ||||
Deferred income tax liability | 8,260 | 9,192 | ||||
Total liabilities | 122,442 | 93,405 | ||||
EQUITY | ||||||
Share capital (note 16) | 1,506,888 | 1,366,710 | ||||
Contributed surplus (note 17) | 66,843 | 67,387 | ||||
Deficit | (1,219,828) | (1,208,587) | ||||
Accumulated other comprehensive income (note 18) | 1,780 | 1,775 | ||||
Total equity | 355,683 | 227,285 | ||||
Total liabilities and equity | $ | 478,125 | $ | 320,690 | ||
Issued and outstanding common shares (in thousands) (note 16) | 805,711 | 678,982 | ||||
Commitments and contingencies (note 24) | ||||||
Subsequent events (note 25) | ||||||
The accompanying notes are integral to the condensed interim consolidated financial statements |
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) | ||||||||
(Unaudited - Expressed in thousands of CAD dollars except for share and per share amounts) | ||||||||
Three Month Ended June 30 | Six Months Ended June 30 | |||||||
2021 | 2020 | 2021 | 2020 | |||||
REVENUES (note 20) | $ | 4,626 | $ | 2,926 | $ | 7,122 | $ | 7,586 |
EXPENSES | ||||||||
Operating expenses (note 19, 20) | (3,691) | (2,048) | (5,579) | (5,368) | ||||
Evaluation (note 20) | (6,381) | (364) | (9,142) | (1,855) | ||||
Exploration (note 20) | (528) | (481) | (1,876) | (2,181) | ||||
General and administrative (note 20) | (2,362) | (1,421) | (4,987) | (3,609) | ||||
Other income (expense) (note 19) | 6,348 | 2,163 | 4,307 | (1,029) | ||||
(6,614) | (2,151) | (17,277) | (14,042) | |||||
Income (loss) before net finance expense | (1,988) | 775 | (10,155) | (6,456) | ||||
Finance expense, net (note 19) | (1,015) | (1,061) | (2,040) | (2,124) | ||||
Loss before taxes | (3,003) | (286) | (12,195) | (8,580) | ||||
Income tax recovery (expense) (note 22) | ||||||||
Deferred | 646 | (757) | 954 | 874 | ||||
Net loss for the period | $ | (2,357) | $ | (1,043) | $ | (11,241) | $ | (7,706) |
Other comprehensive income (loss) (note 18): | ||||||||
Items that may be reclassified to income (loss): | ||||||||
Foreign currency translation change | 2 | 7 | 5 | (7) | ||||
Comprehensive loss for the period | $ | (2,355) | $ | (1,036) | $ | (11,236) | $ | (7,713) |
Basic and diluted net loss per share: | ||||||||
All operations | $ | (0.00) | $ | (0.00) | $ | (0.01) | $ | (0.01) |
Weighted-average number of shares outstanding (in thousands): | ||||||||
Basic and diluted | 805,061 | 621,233 | 759,743 | 609,216 | ||||
The accompanying notes are integral to the condensed interim consolidated financial statements |
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
(Unaudited - Expressed in thousands of CAD dollars) | ||||||||
Six Months Ended June 30 | ||||||||
2021 | 2020 | |||||||
Share capital (note 16) | ||||||||
Balance-beginning of period | $ | 1,366,710 | $ | 1,335,467 | ||||
Shares issued for cash, net of issue costs | 134,050 | 6,878 | ||||||
Share options exercised-cash | 4,289 | - | ||||||
Share options exercised-fair value adjustment | 1,473 | - | ||||||
Share units exercised-fair value adjustment | 366 | 80 | ||||||
Balance-end of period | 1,506,888 | 1,342,425 | ||||||
Share purchase warrants | ||||||||
Balance-beginning of period | - | 435 | ||||||
Warrants expired | - | (435) | ||||||
Balance-end of period | - | - | ||||||
Contributed surplus | ||||||||
Balance-beginning of period | 67,387 | 65,417 | ||||||
Share-based compensation expense (note 17) | 1,295 | 904 | ||||||
Share options exercised-fair value adjustment | (1,473) | - | ||||||
Share units exercised-fair value adjustment | (366) | (80) | ||||||
Warrants expired | - | 435 | ||||||
Balance-end of period | 66,843 | 66,676 | ||||||
Deficit | ||||||||
Balance-beginning of period | (1,208,587) | (1,192,304) | ||||||
Net loss | (11,241) | (7,706) | ||||||
Balance-end of period | (1,219,828) | (1,200,010) | ||||||
Accumulated other comprehensive income (note 18) | ||||||||
Balance-beginning of period | 1,775 | 1,134 | ||||||
Foreign currency translation | 5 | (7) | ||||||
Balance-end of period | 1,780 | 1,127 | ||||||
Total Equity | ||||||||
Balance-beginning of period | 227,285 | 210,149 | ||||||
Balance-end of period | $ | 355,683 | $ | 210,218 | ||||
The accompanying notes are integral to the condensed interim consolidated financial statements |
3
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW | ||||||||
(Unaudited - Expressed in thousands of CAD dollars) | ||||||||
Six Months Ended June 30 | ||||||||
CASH PROVIDED BY (USED IN): | 2021 | 2020 | ||||||
OPERATING ACTIVITIES | ||||||||
Net loss for the period | $ | (11,241) | $ | (7,706) | ||||
Items not affecting cash and cash equivalents: | ||||||||
Depletion, depreciation, amortization and accretion | 3,079 | 3,527 | ||||||
Share-based compensation (note 17) | 1,295 | 904 | ||||||
Recognition of deferred revenue (note 11) | (719) | (1,115) | ||||||
Gains on property, plant and equipment disposals (note 19) | (2) | (407) | ||||||
Fair value change losses (gains): | ||||||||
Investments-equity instruments (note 19) | (5,142) | 961 | ||||||
Investments-uranium (note 19) | (7,534) | - | ||||||
Share warrant liabilities (note 19) | 5,832 | - | ||||||
Warrant liabilities issue costs expensed (note 16) | 791 | - | ||||||
Foreign exchange losses (gains) (note 19) | 1,618 | - | ||||||
Deferred income tax recovery | (954) | (874) | ||||||
Post-employment benefit payments (note 12) | (61) | (38) | ||||||
Reclamation obligation expenditures ( (note 13) | (420) | (427) | ||||||
Change in non-cash working capital items (note 19) | 618 | (1,628) | ||||||
Net cash used in operating activities | (12,840) | (6,803) | ||||||
INVESTING ACTIVITIES | ||||||||
Sale of investments-equity instruments (note 7) | - | 108 | ||||||
Purchase of investments-uranium (note 7) | (76,390) | - | ||||||
Expenditures on property, plant and equipment (note 9) | (355) | (139) | ||||||
Proceeds on sale of property, plant and equipment | 2 | 137 | ||||||
Increase in restricted cash and investments | (318) | (377) | ||||||
Net cash used in investing activities | (77,061) | (271) | ||||||
FINANCING ACTIVITIES | ||||||||
Issuance of debt obligations (note 15) | 34 | - | ||||||
Repayment of debt obligations (note 15) | (124) | (345) | ||||||
Proceeds from unit issues, net of issue costs (note 16) | 135,630 | - | ||||||
Proceeds from other share issues, net of issue costs (note 16) | 10,863 | 6,878 | ||||||
Share option exercise proceeds (note 16) | 4,289 | - | ||||||
Net cash provided by financing activities | 150,692 | 6,533 | ||||||
Increase (decrease) in cash and cash equivalents | 60,791 | (541) | ||||||
Foreign exchange effect on cash and cash equivalents | (931) | - | ||||||
Cash and cash equivalents, beginning of period | 24,992 | 8,190 | ||||||
Cash and cash equivalents, end of period | $ | 84,852 | $ | 7,649 | ||||
The accompanying notes are integral to the condensed interim consolidated financial statements |
4
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2021 | |
(Unaudited - Expressed in CAD dollars except for shares and per share amounts) |
1.
NATURE OF OPERATIONS
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 uranium.
The Company has a 90.0% interest in the Wheeler River Joint Venture (“WRJV”), a 66.90% interest in the Waterbury Lake 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 11). In addition, the Company has varying ownership interests in a number of other development and exploration projects located in Canada.
The Company provides mine decommissioning and other services (collectively “environmental services”) to third parties through its Closed Mines group and was also the manager of Uranium Participation Corporation (“UPC”) during the quarter, a publicly-listed investment holding company formed to invest substantially all of its assets in uranium oxide concentrates (“U3O8”) and uranium hexafluoride (“UF6”). The Company has no ownership interest in UPC but receives fees for management services it provides and commissions from the purchase and sale of U3O8 and UF6 by UPC. See note 25 for an update on the Company’s management services agreement with UPC.
DMC is incorporated under the Business Corporations Act (Ontario) and domiciled in Canada. The address of its registered head office is 40 University Avenue, Suite 1100, Toronto, Ontario, Canada, M5J 1T1.
2.
STATEMENT OF COMPLIANCE
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, 2020. The Company’s presentation currency is Canadian dollars (“CAD”).
These financial statements were approved by the board of directors for issue on August 5, 2021.
3.
ACCOUNTING POLICIES AND COMPARATIVE NUMBERS
Accounting Policies
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, 2020 except as noted below.
During the six months ended June 30, 2021, the Company acquired physical uranium to be held as a long-term investment. As physical uranium is not a financial asset, the provisions of IFRS 9 “Financial Instruments” do not apply to the Company’s investment in uranium. The Company has added the following accounting policy in 2021 for its uranium investments:
(a)
Investments-uranium
Investments in uranium are initially recorded at cost, on the date that control of the uranium passes to the Company. Cost is calculated as the purchase price and any directly attributable expenditure. Subsequent to initial recognition, investments in uranium are measured at fair value at each reporting period end. Fair value is determined based on the most recent month-end spot prices for uranium published by UxC LLC (“UxC”) and converted to Canadian dollars using the foreign exchange rate at the date of the consolidated statement of financial position. Related fair value gains and losses subsequent to initial recognition are recorded in the consolidated statement of income (loss) as a component of “Other Income (Expense)” in the period in which they arise.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The Company is presenting its uranium investments at fair value based on the application of IAS 40 “Investment Property” which allows for the use of a fair value model for assets held for long-term capital appreciation.
Comparative numbers
Certain classifications of the comparative figures have been changed to conform to those used in the current period.
4.
CASH AND CASH EQUIVALENTS
The cash and cash equivalent balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Cash | $ | 2,175 | $ | 12,004 | ||
Cash in MLJV and MWJV | 1,203 | 540 | ||||
Cash equivalents | 81,474 | 12,448 | ||||
$ | 84,852 | $ | 24,992 |
5.
TRADE AND OTHER RECEIVABLES
The trade and other receivables balance consists of:
At June 30 | At December 31 | ||||||
(in thousands of CAD dollars) | 2021 | 2020 | |||||
Trade receivables | $ | 4,315 | $ | 2,644 | |||
Receivables in MLJV and MWJV | 156 | 394 | |||||
Sales tax receivables | 166 | 154 | |||||
Sundry receivables | 2 | 182 | |||||
$ | 4,639 | $ | 3,374 |
6.
INVENTORIES
The inventories balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Inventory of ore in stockpiles | $ | 2,098 | $ | 2,098 | ||
Mine and mill supplies in MLJV | 3,016 | 3,015 | ||||
$ | 5,114 | $ | 5,113 | |||
Inventories-by balance sheet presentation: | ||||||
Current | $ | 3,016 | $ | 3,015 | ||
Long-term-ore in stockpiles | 2,098 | 2,098 | ||||
$ | 5,114 | $ | 5,113 |
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
7.
INVESTMENTS
The investments balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Investments: | ||||||
Equity instruments | ||||||
Shares | $ | 21,847 | $ | 16,657 | ||
Warrants | 245 | 293 | ||||
Uranium | 91,510 | - | ||||
$ | 113,602 | $ | 16,950 | |||
Investments-by balance sheet presentation: | ||||||
Current | $ | 21,847 | $ | 16,657 | ||
Long-term | 91,755 | 293 | ||||
$ | 113,602 | $ | 16,950 |
The investments continuity summary is as follows:
(in thousands of CAD dollars) | Equity Instruments | Physical Uranium | Investments | |||
Balance - December 31, 2020 | $ | 16,950 | $ | - | $ | 16,950 |
Purchase of investments | - | 83,976 | 83,976 | |||
Fair value gain to profit and loss (note 18) | 5,142 | 7,534 | 12,676 | |||
Balance – June 30, 2021 | $ | 22,092 | $ | 91,510 | $ | 113,602 |
During the six months ended June 30, 2021, the Company entered into purchase agreements to acquire a total of 2,500,000 pounds of physical uranium as U3O8 to be held as a long-term investment. As at June 30, 2021, the Company has purchased 2,300,000 pounds of physical uranium as U3O8 at a cost of $83,976,000 (USD$68,030,000), including purchase commissions. At June 30, 2021, $7,586,000 of this purchase amount is included in the Company’s “Accounts payable and accrued liabilities” reported balance and an adjustment has been made to exclude this amount from the purchases reported in the Company’s Consolidated statement of cash flows. See note 24 for additional details on the Company’s remaining purchase commitment of physical uranium.
8.
RESTRICTED CASH AND INVESTMENTS
The restricted cash and investments balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Cash and cash equivalents | $ | 12,336 | $ | 2,883 | ||
Investments | - | 9,135 | ||||
$ | 12,336 | $ | 12,018 |
Restricted cash and investments-by item: | ||||||
Elliot Lake reclamation trust fund | $ | 3,201 | $ | 2,883 | ||
Letters of credit facility pledged assets | 9,000 | 9,000 | ||||
Letters of credit additional collateral | 135 | 135 | ||||
$ | 12,336 | $ | 12,018 |
At June 30, 2021, all term deposits have maturities of less than 90 days at date of purchase.
Elliot Lake Reclamation Trust Fund
During the six months ended June 30, 2021, the Company deposited an additional $793,000 into the Elliot Lake Reclamation Trust Fund and withdrew $477,000.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Letters of Credit Facility Pledged Assets
At June 30, 2021, the Company had on deposit $9,000,000 with the Bank of Nova Scotia (“BNS”) as pledged restricted cash and investments pursuant to its obligations under an amended and extended letters of credit facility (see notes 13 and 15).
Letters of Credit Additional Collateral
At June 30, 2021, the Company had on deposit an additional $135,000 of cash collateral with BNS in respect of the portion of its issued reclamation letters of credit in excess of the collateral available under its letters of credit facility (see notes 13 and 15).
9.
PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment (“PP&E”) continuity summary is as follows:
Plant and Equipment | Mineral | Total | ||||||
(in thousands of CAD dollars) | Owned | Right-of-Use | Properties | PP&E | ||||
Cost: | ||||||||
Balance – December 31, 2020 | $ | 106,087 | $ | 891 | $ | 179,743 | $ | 286,721 |
Additions | 324 | 83 | 22 | 429 | ||||
Disposals | (117) | - | - | (117) | ||||
Recoveries | - | - | (1) | (1) | ||||
Balance – June 30, 2021 | $ | 106,294 | $ | 974 | $ | 179,764 | $ | 287,032 |
Accumulated amortization, depreciation: | ||||||||
Balance – December 31, 2020 | $ | (29,495) | $ | (356) | $ | - | $ | (29,851) |
Amortization | (140) | - | - | (140) | ||||
Depreciation | (574) | (100) | - | (674) | ||||
Disposals | 117 | - | - | 117 | ||||
Balance – June 30, 2021 | $ | (30,092) | $ | (456) | $ | - | $ | (30,548) |
Carrying value: | ||||||||
Balance – December 31, 2020 | $ | 76,592 | $ | 535 | $ | 179,743 | $ | 256,870 |
Balance – June 30, 2021 | $ | 76,202 | $ | 518 | $ | 179,764 | $ | 256,484 |
Plant and Equipment – Owned
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 $68,340,000, or 89.7%, of the June 2021 PP&E total carrying value amount. See note 10 for the current operating status of the McClean Lake mill.
Plant and Equipment – Right-of-Use
The Company has included the cost of various right-of-use (“ROU”) assets within its PP&E carrying value amount. These assets consist of building, vehicle and office equipment leases. The majority of the value, 77.3%, is attributable to the building lease assets for the Company’s office and warehousing spaces located in Toronto and Saskatoon.
Mineral Properties
As at June 30, 2021, the Company has various interests in development, evaluation and exploration projects located in Saskatchewan, Canada, which are either held directly or through option or various contractual agreements. The properties with significant carrying values, being Wheeler River, Waterbury Lake, Midwest, Mann Lake,
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Wolly, Johnston Lake and McClean Lake, represent $162,663,000, or 90.5%, of the June 2021 total mineral property carrying amount.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The accounts payable and accrued liabilities balance consists of:
At June 30 | At December 31 | ||||||
(in thousands of CAD dollars) | 2021 | 2020 | |||||
Trade payables | $ | 4,531 | $ | 2,513 | |||
Trade payables – uranium investments | 7,586 | - | |||||
Payables in MLJV and MWJV | 4,197 | 3,719 | |||||
Other payables | 755 | 946 | |||||
$ | 17,069 | $ | 7,178 |
11. DEFERRED REVENUE
The deferred revenue balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Deferred revenue – pre-sold toll milling: | ||||||
CLJV toll milling – APG | $ | 37,442 | $ | 36,617 | ||
$ | 37,442 | $ | 36,617 | |||
Deferred revenue-by balance sheet presentation: | ||||||
Current | $ | 4,656 | $ | 3,478 | ||
Non-current | 32,786 | 33,139 | ||||
$ | 37,442 | $ | 36,617 |
The deferred revenue liability continuity summary is as follows:
(in thousands of CAD dollars) | Deferred Revenue | |||||
Balance - December 31, 2020 | $ | 36,617 | ||||
Accretion (note 19) | 1,544 | |||||
Revenue recognized during the period (note 20) | (719) | |||||
Balance – June 30, 2021 | $ | 37,442 |
Arrangement with Anglo Pacific Group PLC (“APG”)
In February 2017, Denison closed an arrangement with APG 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 APG Arrangement represents a contractual obligation of Denison to pay onward to APG any cash proceeds of future toll milling revenue earned by the Company related to the processing of 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 APG or any changes in Cigar Lake Phase 1 and Phase 2 toll milling production estimates are recognized.
In the six months ended June 30, 2021, the Company has recognized $719,000 of toll milling revenue from the draw-down of deferred revenue consisting of $658,000 based on Cigar Lake toll milling production in the quarter (2,542,000 pounds U3O8 on a 100% basis) and a retroactive $61,000 increase in revenue resulting from changes in estimates to the toll milling drawdown rate in the second quarter of 2021. For the comparative six months ended June 30, 2020, the Company recognized $1,115,000 of toll milling revenue from the draw-down of deferred revenue
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
comprised of $1,056,000 based on Cigar Lake toll milling production in the quarter (4,184,000 pounds U3O8 on a 100% basis) and a retroactive $59,000 increase in revenue resulting from changes in estimates to the toll milling drawdown rate in the second quarter of 2020.
Production at the Cigar Lake mine and the McClean Lake mill, which had been temporarily suspended since the beginning of 2021 in response to the COVID-19 pandemic, has resumed. Cameco restarted ore production at the Cigar Lake mine in April 2021 and toll-milling production at McClean Lake restarted in May 2021 with packaged uranium production occuring in early June 2021. The current portion of the deferred revenue liability at June 2021 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 will be reassessed on a quarterly basis throughout fiscal 2021.
12. POST-EMPLOYMENT BENEFITS
The post-employment benefits balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Accrued benefit obligation | $ | 1,312 | $ | 1,361 | ||
$ | 1,312 | $ | 1,361 | |||
Post-employment benefits-by balance sheet presentation: | ||||||
Current | $ | 120 | $ | 120 | ||
Non-current | 1,192 | 1,241 | ||||
$ | 1,312 | $ | 1,361 |
The post-employment benefits continuity summary is as follows:
(in thousands of CAD dollars) | Post-Employment Benefits | |||||
Balance - December 31, 2020 | $ | 1,361 | ||||
Accretion (note 19) | 12 | |||||
Benefits paid | (61) | |||||
Balance – June 30, 2021 | $ | 1,312 |
13. RECLAMATION OBLIGATIONS
The reclamation obligations balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2020 | 2020 | ||||
Reclamation obligations-by location: | ||||||
Elliot Lake | $ | 21,481 | $ | 21,523 | ||
McClean and Midwest Joint Ventures | 17,169 | 16,875 | ||||
Other | 22 | 22 | ||||
$ | 38,672 | $ | 38,420 | |||
Reclamation obligations-by balance sheet presentation: | ||||||
Current | $ | 802 | $ | 802 | ||
Non-current | 37,870 | 37,618 | ||||
$ | 38,672 | $ | 38,420 |
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The reclamation obligations continuity summary is as follows:
(in thousands of CAD dollars) | Reclamation Obligations | |||||
Balance - December 31, 2020 | $ | 38,420 | ||||
Accretion (note 19) | 672 | |||||
Expenditures incurred | (420) | |||||
Balance – June 30, 2021 | $ | 38,672 |
Site Restoration: Elliot Lake
Spending on restoration activities at the Elliot Lake site is funded from monies in the Elliot Lake Reclamation Trust fund (see note 8).
Site Restoration: McClean Lake Joint Venture and Midwest Joint Venture
Under the 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. As at June 30, 2021, the Company has provided irrevocable standby letters of credit, from a chartered bank, in favour of the Saskatchewan Ministry of Environment, totalling $24,135,000 which relate to the most recently filed reclamation plan dated March 2016.
14. SHARE PURCHASE WARRANTS LIABILITY
In connection with the public offerings of units in February 2021 and March 2021 (see note 16), the Company issued 15,796,975 and 39,215,000 share purchase warrants to unit holders, respectively. The February 2021 warrants entitle the holder to acquire one common share of the Company at an exercise price of USD$2.00 for 24 months after issuance. The March 2021 warrants entitle the holder to acquire one common share of the Company at an exercise price of USD$2.25 for 24 months after issuance.
Since both of these warrants are excercisable in U.S. dollars (“USD”), which differs from the Company’s CAD functional currency, they are classified as derivative liabilities and are required to be carried as liabilities at fair value through profit and loss. When the fair value of the warrants is revalued at each reporting period, the change in the liability is recorded through net profit or loss.
The fair value of the February 2021 warrants was estimated to be $0.2215 on the date of issue, based on a relative fair value basis approach, using a USD to CAD foreign exchange rate of 0.7928 and incorporating the following assumptions in the Black-Scholes option pricing model – expected volatility of 67.3%, risk-free interest rate of 0.22%, dividend yield of 0% and an expected term of 2 years.
At June 30, 2021, the fair value of the February 2021 warrants was estimated to be $0.3793, using a USD to CAD foreign exchange rate of 0.8068 and incorporating the following assumptions in the Black-Scholes option pricing model – expected volatility of 80.1%, risk-free interest rate of 0.44%, dividend yield of 0% and an expected term of 1.64 years.
The fair value of the March 2021 warrants was estimated to be $0.2482 on the date of issue, based on a relative fair value basis approach, using a USD to CAD foreign exchange rate of 0.7992 and incorporating the following assumptions in the Black-Scholes option pricing model – expected volatility of 71.54%, risk-free interest rate of 0.27%, dividend yield of 0% and an expected term of 2 years.
At June 30, 2021, the fair value of the March 2021 warrants was estimated to be $0.3342, using a USD to CAD foreign exchange rate of 0.8068 and incorporating the following assumptions in the Black-Scholes option pricing model – expected volatility of 78.0%, risk-free interest rate of 0.44%, dividend yield of 0% and an expected term of 1.72 years.
11
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The share purchase warrants liability continuity is as follows:
Number of | Warrant | ||
(in thousands of CAD dollars except warrant amounts) | Warrants | Liability | |
Balance - December 31, 2020 | - | $ | - |
Warrants issued on February 19, 2021 | 15,796,975 | 3,499 | |
Warrants issued on March 22, 2021 | 39,215,000 | 9,735 | |
Change in fair value estimates | - | 5,832 | |
Balance – June 30, 2021 | 55,011,975 | $ | 19,066 |
15. OTHER LIABILITIES
The other liabilities balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Debt obligations: | ||||||
Lease liabilities | $ | 558 | $ | 582 | ||
Loan liabilities | 63 | 33 | ||||
Flow-through share premium obligation (note 17) | - | 22 | ||||
$ | 621 | $ | 637 | |||
Other liabilities-by balance sheet presentation: | ||||||
Current | $ | 234 | $ | 262 | ||
Non-current | 387 | 375 | ||||
$ | 621 | $ | 637 |
Debt Obligations
At June 30, 2021, the Company’s debt obligations are comprised of lease liabilities and loan liabilities. The debt obligations continuity summary is as follows:
Lease | Loan | Total Debt | |||||||
(in thousands of CAD dollars) | Liabilitites | Liabilities | Obligations | ||||||
Balance – December 31, 2020 | $ | 582 | $ | 33 | $ | 615 | |||
Accretion (note 19) | 24 | - | 24 | ||||||
Additions | 72 | 34 | 106 | ||||||
Repayments | (120) | (4) | (124) | ||||||
Balance – June 30, 2021 | $ | 558 | $ | 63 | $ | 621 |
Debt Obligations – Scheduled Maturities
The following table outlines the Company’s scheduled maturities of its debt obligations at June 30, 2021:
Lease | Loan | Total Debt | |||||||
(in thousands of CAD dollars) | Liabilitites | Liabilities | Obligations | ||||||
Maturity analysis – contractual undiscounted cash flows: | |||||||||
Next 12 months | $ | 217 | $ | 17 | $ | 234 | |||
One to five years | 431 | 52 | 483 | ||||||
More than five years | - | - | - | ||||||
Total obligation – June 30, 2021 – undiscounted | 648 | 69 | 717 | ||||||
Present value discount adjustment | (90) | (6) | (96) | ||||||
Total obligation – June 30, 2021 – discounted | $ | 558 | $ | 63 | $ | 621 |
12
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Letters of Credit Facility
In January 2021, the Company entered into an amending agreement for its letters of credit facility with BNS (the “2021 Facility”). Under the amendment, the maturity date of the 2021 Facility has been extended to January 31, 2022. All other terms of the 2021 Facility (tangible net worth covenant, pledged cash, investment amounts and security for the facility) remain unchanged from the previous facility. Accordingly, the 2021 Facility continues to provide the Company with access to credit up to $24,000,000 (the use of which is restricted to non-financial letters of credit in support of reclamation obligations) subject to letter of credit fees of 2.40% (0.40% on the $9,000,000 covered by pledged cash collateral) and standby fees of 0.75%.
At June 30, 2021, the Company is in compliance with its facility covenants and $24,000,000 (December 31, 2020: $24,000,000) of the facility is being utilized as collateral for letters of credit issued in respect of the reclamation obligations for the MLJV and MWJV. During the six months ended June 30, 2021, the Company incurred letter of credit fees of $196,000 (June 30, 2020: $198,000).
16. SHARE CAPITAL
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:
Number of | |||
Common | Share | ||
(in thousands of CAD dollars except share amounts) | Shares | Capital | |
Balance - December 31, 2020 | 678,981,882 | $ | 1,366,710 |
Issued for cash: | |||
Unit issue proceeds – total | 110,023,950 | 144,214 | |
Less: allocation to share warrants liability (note 14) | - | (13,234) | |
Unit issue costs - total | - | (8,584) | |
Less: allocation to share warrants issue expense | - | 791 | |
Other share issue proceeds – total | 10,156,186 | 11,914 | |
Less: other share issue costs | - | (1,051) | |
Share option exercises | 5,918,248 | 4,289 | |
Share option exercises – fair value adjustment | - | 1,473 | |
Share units exercises – fair value adjustment | 630,499 | 366 | |
126,728,883 | 140,178 | ||
Balance – June 30, 2021 | 805,710,765 | $ | 1,506,888 |
Unit and Other Share Issues
In January and February 2021, Denison, through its agents, issued 4,230,186 common shares under its at-the-market (“ATM”) program at an average price of $0.93 per share for aggregate gross proceeds of $3,914,000. The Company also recognized issue costs of $466,000 related to its ATM share issuances which includes $78,000 of commissions and $384,000 associated with the set-up of the ATM program which were previously deferred on the balance sheet and included in Prepaid expenses and other at December 31, 2020. In connection with the public offering completed on March 22, 2021 (see below), the Company terminated its ATM program and has ceased any distributions thereunder.
On February 19, 2021, the Company completed a public offering by way of a prospectus supplement to the 2020 Shelf Prospectus of 31,593,950 units of the Company at USD$0.91 per unit for gross proceeds of $36,265,000 (USD$28,750,000), including the full exercise of the underwriters’ over-allotment option of 4,120,950 units. Each unit consisted of one common share and one-half of one transferable common share purchase warrant of the Company. Each full warrant is exercisable to acquire one common share of the Company at an exercise price of USD$2.00 for 24 months after issuance. A portion of the gross proceeds ($3,499,000 – see note 14) has been allocated to share warrant liabilities on a relative fair value basis and the pro-rata share of the issue costs associated with the offering has been expensed within Other expense (see note 19).
On March 3, 2021, the Company completed a private placement of 5,926,000 flow-through common shares at a price of $1.35 per share for gross proceeds of approximately $8,000,000. The income tax benefits of this issue will be renounced to subscribers with an effective date of December 31, 2021. The related flow-through share premium liability was valued at $Nil as the issue price was less than the Company’s observed share price on the date of issue.
14
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
On March 22, 2021, the Company completed a public offering by way of a prospectus supplement to the 2020 Shelf Prospectus of 78,430,000 units of the Company at USD$1.10 per unit for gross proceeds of $107,949,000 (USD$86,273,000), including the full exercise of the underwriters’ over-allotment option of 10,230,000 units. Each unit consisted of one common share and one-half of one transferable common share purchase warrant of the Company. Each full warrant is exercisable to acquire one common share of the Company at an exercise price of USD$2.25 for 24 months after issuance. A portion of the gross proceeds ($9,735,000 – see note 14) has been allocated to share warrant liabilities on a relative fair value basis and the pro-rata share of the issue costs associated with the offering has been expensed within Other expense (see note 19).
Flow-Through Share Issues
The Company finances a portion of its exploration programs through the use of flow-through share issuances. Canadian income tax deductions relating to these expenditures are claimable by the investors and not by the Company.
As at June 30, 2021, the Company estimates that it has satisfied its obligation to spend $930,485 on eligible exploration expenditures in fiscal 2021 due to the issuance of flow-through shares in December 2020. The Company renounced the income tax benefits of this issue in February 2021, with an effective date of renunciation to its subscribers of December 31, 2020. In conjunction with the renunciation, the flow-through share premium liability at December 31, 2020 has been extinguished and a deferred tax recovery has been recognized in the first quarter of 2021 (see notes 15 and 22).
As at June 30, 2021, the Company estimates that it has incurred $377,000 of expenditures towards its obligation to spend $8,000,000 on eligible exploration expenditures by the end of fiscal 2022 due to the issuance of flow-through shares in March 2021.
17. SHARE-BASED COMPENSATION
The Company’s share based compensation arrangements include stock options, restricted share units (“RSUs”) and performance share units (“PSUs”).
A summary of share based compensation expense recognized in the statement of income (loss) is as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Share based compensation expense for: | ||||||||
Stock options | $ | (420) | $ | (139) | $ | (615) | $ | (296) |
RSUs | (457) | (259) | (663) | (487) | ||||
PSUs | (43) | (23) | (17) | (121) | ||||
Share based compensation expense | $ | (920) | $ | (421) | $ | (1,295) | $ | (904) |
An additional $4,153,000 in share-based compensation expense remains to be recognized, up until May 2024, on outstanding options and share units at June 30, 2021.
14
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Stock Options
Stock options granted in 2021 vest over a period of 24 months. A continuity summary of the stock options granted under the Company’s stock-based compensation plan is presented below:
Weighted- | |||||||||
Average | |||||||||
Exercise | |||||||||
Number of | Price per | ||||||||
Common | Share | ||||||||
Shares | (CAD) | ||||||||
Stock options outstanding – December 31, 2020 | 15,077,243 | $ | 0.67 | ||||||
Grants | 3,969,000 | 1.27 | |||||||
Exercises (1) | (5,918,248) | 0.72 | |||||||
Expiries | (15,000) | 0.64 | |||||||
Forfeitures | (693,000) | 0.69 | |||||||
Stock options outstanding – June 30, 2021 | 12,419,995 | $ | 0.83 | ||||||
Stock options exercisable – June 30, 2021 | 6,863,995 | $ | 0.68 |
(1)
The weighted average share price at the date of exercise was $1.23.
A summary of the Company’s stock options outstanding at June 30, 2021 is presented below:
Weighted | Weighted- | ||||||||
Average | Average | ||||||||
Remaining | Exercise | ||||||||
Range of Exercise | Contractual | Number of | Price per | ||||||
Prices per Share | Life | Common | Share | ||||||
(CAD) | (Years) | Shares | (CAD) | ||||||
Stock options outstanding | |||||||||
$ 0.25 to $ 0.49 | 3.72 | 2,722,000 | $ | 0.45 | |||||
$ 0.50 to $ 0.74 | 2.28 | 3,503,395 | 0.64 | ||||||
$ 0.75 to $ 0.99 | 0.69 | 2,383,600 | 0.85 | ||||||
$ 1.00 to $ 1.39 | 4.69 | 3,508,000 | 1.26 | ||||||
$ 1.40 to $ 1.99 | 4.86 | 303,000 | 1.43 | ||||||
Stock options outstanding – June 30, 2021 | 3.03 | 12,419,995 | $ | 0.83 |
Options outstanding at June 30, 2021 expire between August 2021 and May 2026.
The fair value of each 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 options granted during the current period:
Six Months Ended | |||||
June 30, 2021 | |||||
Risk-free interest rate | 0.70% - 0.76% | ||||
Expected stock price volatility | 66.11% - 68.86% | ||||
Expected life | 3.4 years | ||||
Expected dividend yield | - | ||||
Fair value per share under options granted | $0.59 - $0.69 |
Share Units
RSUs granted under the plan in 2021 vest ratably over a period of three years. No PSUs have been granted in 2021 as at June 30, 2021.
15
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
A continuity summary of the RSUs and PSUs of the Company granted under the share unit plan is presented below:
RSUs | PSUs | |||||||
Weighted | Weighted | |||||||
Average | Average | |||||||
Number of | Fair Value | Number of | Fair Value | |||||
Common | Per RSU | Common | Per PSU | |||||
Shares | (CAD) | Shares | (CAD) | |||||
Units outstanding – December 31, 2020 | 5,691,899 | $ | 0.52 | 2,020,000 | $ | 0.63 | ||
Grants | 1,886,000 | 1.42 | - | - | ||||
Exercises (1) | (420,499) | 0.54 | (210,000) | 0.66 | ||||
Forfeitures | (767,228) | 0.56 | (180,000) | 0.69 | ||||
Units outstanding – June 30, 2021 | 6,390,172 | $ | 0.78 | 1,630,000 | $ | 0.62 | ||
Units vested – June 30, 2021 | 2,319,173 | $ | 0.59 | 870,000 | $ | 0.63 |
(1)
The weighted average share price at the date of exercise was $1.35 for RSUs and $1.41 for PSUs.
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.
18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated other comprehensive income (loss) balance consists of:
At June 30 | At December 31 | |||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||
Cumulative foreign currency translation | $ | 418 | $ | 413 | ||
Unamortized experience gain-post employment liability | ||||||
Gross | 1,847 | 1,847 | ||||
Tax effect | (485) | (485) | ||||
$ | 1,780 | $ | 1,775 |
19. SUPPLEMENTAL FINANCIAL INFORMATION
The components of operating expenses are as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Cost of goods and services sold: | ||||||||
Cost of goods sold – mineral concentrates | $ | - | $ | - | $ | - | $ | (526) |
Operating overheads: | ||||||||
Mining, other development expense | (823) | (334) | (1,055) | (547) | ||||
Milling, conversion expense | (471) | (6) | (475) | (746) | ||||
Less absorption: | ||||||||
-Mineral properties | 11 | 13 | 22 | 25 | ||||
Cost of services | (2,338) | (1,659) | (3,931) | (3,374) | ||||
Cost of goods and services sold | (3,621) | (1,986) | (5,439) | (5,168) | ||||
Reclamation asset amortization | (70) | (62) | (140) | (122) | ||||
Selling expenses | - | - | - | (14) | ||||
Sales royalties and non-income taxes | - | - | - | (64) | ||||
Operating expenses | $ | (3,691) | $ | (2,048) | $ | (5,579) | $ | (5,368) |
16
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The components of other income (expense) are as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Gains (losses) on: | ||||||||
Foreign exchange | $ | (2,059) | $ | (98) | $ | (1,618) | $ | (78) |
Disposal of property, plant and equipment | 2 | 405 | 2 | 407 | ||||
Fair value changes: | ||||||||
Investments-equity instruments (note 7) | 5,233 | 1,989 | 5,142 | (961) | ||||
Investments-uranium (note 7) | 7,534 | - | 7,534 | - | ||||
Warrant liabilities (note 14) | (4,268) | - | (5,832) | - | ||||
Issue costs-warrant liabilities (note 16) | (2) | - | (791) | - | ||||
Uranium investment carrying charges | (54) | - | (54) | - | ||||
Other | (38) | (133) | (76) | (397) | ||||
Other income (expense) | $ | 6,348 | $ | 2,163 | $ | 4,307 | $ | (1,029) |
The components of finance income (expense) are as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Interest income | $ | 130 | $ | 64 | $ | 213 | $ | 156 |
Interest expense | (1) | (1) | (1) | (3) | ||||
Accretion expense | ||||||||
Deferred revenue (note 11) | (790) | (755) | (1,544) | (1,537) | ||||
Post-employment benefits (note 12) | (6) | (17) | (12) | (34) | ||||
Reclamation obligations (note 13) | (336) | (338) | (672) | (676) | ||||
Debt obligations (note 14) | (12) | (14) | (24) | (30) | ||||
Finance income (expense) | $ | (1,015) | $ | (1,061) | $ | (2,040) | $ | (2,124) |
A summary of depreciation expense recognized in the statement of income (loss) is as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Operating expenses | ||||||||
Mining, other development expense | $ | - | $ | (1) | $ | (1) | $ | (2) |
Milling, conversion expense | (429) | - | (429) | (736) | ||||
Cost of services | (46) | (47) | (91) | (100) | ||||
Evaluation | (9) | (9) | (18) | (18) | ||||
Exploration | (50) | (37) | (80) | (78) | ||||
General and administrative | (30) | (32) | (55) | (64) | ||||
Depreciation expense-gross | $ | (564) | $ | (126) | $ | (674) | $ | (998) |
A summary of employee benefits expense recognized in the statement of income (loss) is as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Salaries and short-term employee benefits | $ | (2,104) | $ | (1,545) | $ | (5,138) | $ | (3,703) |
Share-based compensation (note 17) | (920) | (421) | (1,295) | (904) | ||||
Termination benefits | - | - | (29) | - | ||||
Employee benefits expense | $ | (3,024) | $ | (1,966) | $ | (6,462) | $ | (4,607) |
17
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The change in non-cash working capital items in the consolidated statements of cash flows is as follows:
Six Months Ended June 30 | ||||||||
(in thousands of CAD dollars) | 2021 | 2020 | ||||||
Change in non-cash working capital items: | ||||||||
Trade and other receivables | $ | (1,265) | $ | 890 | ||||
Inventories | (1) | 433 | ||||||
Prepaid expenses and other assets | 262 | 401 | ||||||
Accounts payable and accrued liabilities | 1,622 | (3,352) | ||||||
Change in non-cash working capital items | $ | 618 | $ | (1,628) |
20. SEGMENTED INFORMATION
Business Segments
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 environmental services business which provides mine decommissioning and other services to third parties. The Corporate and Other segment includes management fee income earned from UPC and general corporate expenses not allocated to the other segments. Management fee income from UPC has been included with general corporate expenses due to the shared infrastructure between the two activities.
18
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
For the six months ended June 30, 2021, reportable segment results were as follows:
(in thousands of CAD dollars) | Mining | Closed Mine Services | Corporate and Other | Total | ||
Statement of Operations: | ||||||
Revenues | 719 | 4,310 | 2,093 | 7,122 | ||
Expenses: | ||||||
Operating expenses | (1,648) | (3,931) | - | (5,579) | ||
Evaluation | (9,142) | - | - | (9,142) | ||
Exploration | (1,876) | - | - | (1,876) | ||
General and administrative | (17) | - | (4,970) | (4,987) | ||
(12,683) | (3,931) | (4,970) | (21,584) | |||
Segment income (loss) | (11,964) | 379 | (2,877) | (14,462) | ||
Revenues – supplemental: | ||||||
Environmental services | - | 4,310 | - | 4,310 | ||
Management fees | - | - | 2,093 | 2,093 | ||
Toll milling services–deferred revenue (note 11) | 719 | - | - | 719 | ||
719 | 4,310 | 2,093 | 7,122 | |||
Capital additions: | ||||||
Property, plant and equipment | 310 | 36 | 83 | 429 | ||
Long-lived assets – as at June 30, 2021: | ||||||
Plant and equipment | ||||||
Cost | 101,829 | 4,465 | 974 | 107,268 | ||
Accumulated depreciation | (26,910) | (3,167) | (471) | (30,548) | ||
Mineral properties | 179,764 | - | - | 179,764 | ||
254,683 | 1,298 | 503 | 256,484 |
For the three months ended June 30, 2021, reportable segment results were as follows:
(in thousands of CAD dollars) | Mining | Closed Mine Services | Corporate and Other | Total | ||
Statement of Operations: | ||||||
Revenues | 582 | 2,566 | 1,478 | 4,626 | ||
Expenses: | ||||||
Operating expenses | (1,353) | (2,338) | - | (3,691) | ||
Evaluation | (6,381) | - | - | (6,381) | ||
Exploration | (528) | - | - | (528) | ||
General and administrative | - | - | (2,362) | (2,362) | ||
(8,262) | (2,338) | (2,362) | (12,962) | |||
Segment income (loss) | (7,680) | 228 | (884) | (8,336) | ||
Revenues – supplemental: | ||||||
Environmental services | - | 2,566 | - | 2,566 | ||
Management fees | - | - | 1,478 | 1,478 | ||
Toll milling services–deferred revenue (note 11) | 582 | - | - | 582 | ||
582 | 2,566 | 1,478 | 4,626 |
19
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
For the six months ended June 30, 2020, reportable segment results were as follows:
(in thousands of CAD dollars) | Mining | Closed Mine Services | Corporate and Other | Total | ||
Statement of Operations: | ||||||
Revenues | 1,967 | 4,132 | 1,487 | 7,586 | ||
Expenses: | ||||||
Operating expenses | (1,994) | (3,374) | - | (5,368) | ||
Evaluation | (1,855) | - | - | (1,855) | ||
Exploration | (2,181) | - | - | (2,181) | ||
General and administrative | (19) | - | (3,590) | (3,609) | ||
(6,049) | (3,374) | (3,590) | (13,013) | |||
Segment income (loss) | (4,082) | 758 | (2,103) | (5,427) | ||
Revenues – supplemental: | ||||||
Environmental services | - | 4,132 | - | 4,132 | ||
Management fees | - | - | 1,487 | 1,487 | ||
Uranium concentrate sales | 852 | - | - | 852 | ||
Toll milling services–deferred revenue (note 11) | 1,115 | - | - | 1,115 | ||
1,967 | 4,132 | 1,487 | 7,586 | |||
Capital additions: | ||||||
Property, plant and equipment | 124 | 15 | - | 139 | ||
Long-lived assets – as at June 30, 2020: | ||||||
Plant and equipment | ||||||
Cost | 99,994 | 4,546 | 908 | 105,448 | ||
Accumulated depreciation | (25,305) | (3,102) | (368) | (28,775) | ||
Mineral properties | 179,605 | - | - | 179,605 | ||
254,294 | 1,444 | 540 | 256,278 |
For the three months ended June 30, 2020, reportable segment results were as follows:
(in thousands of CAD dollars) | Mining | Closed Mine Services | Corporate and Other | Total | ||
Statement of Operations: | ||||||
Revenues | 152 | 2,104 | 670 | 2,926 | ||
Expenses: | ||||||
Operating expenses | (389) | (1,659) | - | (2,048) | ||
Evaluation | (364) | - | - | (364) | ||
Exploration | (481) | - | - | (481) | ||
General and administrative | (5) | - | (1,416) | (1,421) | ||
(1,239) | (1,659) | (1,416) | (4,314) | |||
Segment income (loss) | (1,087) | 445 | (746) | (1,388) | ||
Revenues – supplemental: | ||||||
Environmental services | - | 2,104 | - | 2,104 | ||
Management fees | - | - | 670 | 670 | ||
Toll milling services–deferred revenue (note 11) | 152 | - | - | 152 | ||
152 | 2,104 | 670 | 2,926 |
20
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
21. RELATED PARTY TRANSACTIONS
Uranium Participation Corporation
The current management services agreement (“MSA”) with UPC became effective on April 1, 2019 and has a term of five years (the “Term”). Under the MSA, Denison receives the following management fees from UPC: a) a base fee of $400,000 per annum, payable in equal quarterly installments; b) a variable fee equal to (i) 0.3% per annum of UPC’s total assets in excess of $100 million and up to and including $500 million, and (ii) 0.2% per annum of UPC’s total assets in excess of $500 million; c) a fee, at the discretion of the Board, for on-going monitoring or work associated with a transaction or arrangement (other than a financing, or the acquisition of or sale of U3O8 or UF6); and d) a commission of 1.0% of the gross value of any purchases or sales of U3O8 or UF6 or gross interest fees payable to UPC in connection with any uranium loan arrangements.
The MSA may be terminated during the Term by Denison upon the provision of 180 days written notice. The MSA may be terminated during the Term by UPC (i) in the event of a material breach, (ii) within 90 days of certain events surrounding a change of both of the individuals serving as Chief Executive Officer and Chief Financial Officer of UPC, and / or a change of control of Denison, or (iii) upon the provision of 30 days written notice and, subject to certain exceptions, a cash payment to Denison of an amount equal to the base and variable management fees that would otherwise be payable to Denison (calculated based on UPC’s current uranium holdings at the time of termination) for the lesser period of a) three years, or b) the remaining term of the MSA.
See note 25 for further information regarding the UPC MSA.
The following transactions were incurred with UPC for the periods noted:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Management fees: | ||||||||
Base and variable fees | $ | 571 | $ | 551 | $ | 1,046 | $ | 1,014 |
Commission fees | 697 | 119 | 697 | 173 | ||||
Discretionary fees | 210 | - | 350 | 300 | ||||
$ | 1,478 | $ | 670 | $ | 2,093 | $ | 1,487 |
At June 30, 2021, accounts receivable includes $1,199,000 (December 31, 2020: $265,000) due from UPC with respect to the fees indicated above.
Korea Electric Power Corporation (“KEPCO”) and Korea Hydro & Nuclear Power (“KHNP”)
As at June 30, 2021, KEPCO, through its subsidiaries, holds 58,284,000 shares of Denison representing a share interest of approximately 7.23%. KHNP Canada Energy Ltd., a subsidiary of KEPCO’s subsidiary KHNP, is the holder of the majority of Denison’s shares and is also the majority member of Korea Waterbury Uranium Limited Partnership (“KWULP”). KWULP is a consortium of investors that holds the non-Denison owned interests in Waterbury Lake Uranium Corporation (“WLUC”) and Waterbury Lake Uranium Limited Partnership (“WLULP”), entities whose key asset is the Waterbury Lake property.
Other
During the six months ended June 30, 2021, the Company incurred investor relations, administrative service fees and certain pass-through expenses of $164,000 (June 30, 2020: $96,000) with Namdo Management Services Ltd, a company that a former director of Denison is a shareholder of. These services were incurred in the normal course of operating a public company. At June 30, 2021, an amount of $71,000 (December 31, 2020: $nil) was due to this company.
Compensation of Key Management Personnel
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 include the Company’s executive officers, vice-presidents and members of its Board of Directors.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The following compensation was awarded to key management personnel:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
(in thousands of CAD dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Salaries and short-term employee benefits | $ | (494) | $ | (371) | $ | (1,537) | $ | (955) |
Share-based compensation | (737) | (320) | (1,057) | (750) | ||||
Key management personnel compensation | $ | (1,231) | $ | (691) | $ | (2,594) | $ | (1,705) |
22. INCOME TAXES
For the six months ended June 30, 2021, Denison has recognized deferred tax recoveries of $954,000. The deferred tax recovery includes the recognition of previously unrecognized Canadian tax assets of $247,000 relating to the February 2021 renunciation of the tax benefits associated with the Company’s $930,485 flow-through share issue in December 2020.
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
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:
●
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
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Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
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Level 3 – Inputs that are not based on observable market data.
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, or the variable interest rate associated with the instruments, or the fixed interest rate of the instruments being similar to market rates.
During the six months ended June 30, 2021, there were no transfers between levels 1, 2 and 3 and there were no changes in valuation techniques.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
The following table illustrates the classification of the Company’s financial assets within the fair value hierarchy as at June 30, 2021 and December 31, 2020:
June 30 | December 31, | |||||||
Financial | Fair | 2021 | 2020 | |||||
Instrument | Value | Fair | Fair | |||||
(in thousands of CAD dollars) | Category(1) | Hierarchy | Value | Value | ||||
Financial Assets: | ||||||||
Cash and equivalents | Category B | $ | 84,852 | $ | 24,992 | |||
Trade and other receivables | Category B | 4,639 | 3,374 | |||||
Investments | ||||||||
Equity instruments-shares | Category A | Level 1 | 21,847 | 16,657 | ||||
Equity instruments-warrants | Category A | Level 2 | 245 | 293 | ||||
Restricted cash and equivalents | ||||||||
Elliot Lake reclamation trust fund | Category B | 3,201 | 2,883 | |||||
Credit facility pledged assets | Category B | 9,000 | 9,000 | |||||
Reclamation letter of credit collateral | Category B | 135 | 135 | |||||
$ | 123,919 | $ | 57,334 | |||||
Financial Liabilities: | ||||||||
Accounts payable and accrued liabilities | Category C | 17,069 | 7,178 | |||||
Share purchase warrants liabilty | Category A | Level 2 | 19,066 | - | ||||
Debt obligations | Category C | 621 | 615 | |||||
$ | 36,756 | $ | 7,793 |
(1)
Financial instrument designations are as follows: Category A=Financial assets and liabilities at fair value through profit and loss; Category B=Financial assets at amortized cost; and Category C=Financial liabilities at amortized cost.
24. COMMITMENTS AND CONTINGENCIES
Specific Legal Matters
Mongolia Mining Division Sale – Arbitration Proceedings with Uranium Industry
In November 2015, the Company sold all of its mining assets and operations located in Mongolia to Uranium Industry a.s (“UI”) pursuant to an amended and restated share purchase agreement (the “GSJV Agreement”). The primary assets at that time were the exploration licenses for the Hairhan, Haraat, Gurvan Saihan and Ulzit projects. As consideration for the sale per the GSJV Agreement, the Company received cash consideration of USD$1,250,000 prior to closing and the rights to receive additional contingent consideration of up to USD$12,000,000.
On September 20, 2016, the Mineral Resources Authority of Mongolia (“MRAM”) formally issued mining license certificates for all four projects, triggering Denison’s right to receive contingent consideration of USD$10,000,000 (collectively, the “Mining License Receivable”). The original due date for payment of the Mining License Receivable by UI was November 16, 2016.
Under an extension agreement between UI and the Company, the payment due date of the Mining License Receivable was extended from November 16, 2016 to July 16, 2017 (the “Extension Agreement”). As consideration for the extension, UI agreed to pay interest on the Mining License Receivable amount at a rate of 5% per year, payable monthly up to July 16, 2017 and they also agreed to pay a USD$100,000 instalment amount towards the balance of the Mining License Receivable amount. The required payments were not made.
On February 24, 2017, the Company served notice to UI that it was in default of its obligations under the GSJV Agreement and the Extension Agreement and on December 12, 2017, the Company filed a Request for Arbitration between the Company and UI under the Arbitration Rules of the London Court of International Arbitration. Hearings in front of the arbitration panel were held in December 2019. The final award was rendered by an arbitration panel on July 27, 2020, with the panel finding in favour of Denison and ordering UI to pay the Company USD$10,000,000 plus interest at a rate of 5% per annum from November 16, 2016, plus certain legal and arbitration costs. Denison and UI have exchanged correspondence, and award recovery options are being considered.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Uranium Purchase Commitments
Denison has entered into agreements to purchase 2,500,000 pounds of U3O8 for delivery in 2021. As at June 30th, Denison has taken delivery of 2,300,000 pounds with the remaining 200,000 pounds to be delivered at various times between July 1, 2021 and October 31, 2021. The purchase commitment for the remaining deliveries is valued at USD$6,100,000 ($7,560,000 using the June 30, 2021 foreign exchange rate of 1.2394).
25. SUBSEQUENT EVENTS
Uranium Participation Corporation
On July 19, 2021, UPC and Sprott Asset Management LP (“Sprott”) completed a plan of arrangement whereby UPC shareholders became unitholders of the Sprott Physical Uranium Trust, a newly formed entity managed by Sprott (the “UPC Transaction”). In conjunction with the completion of the UPC Transaction, the MSA between Denison and UPC was terminated and Denison received a termination payment from UPC of $5,848,000.
Acquisition of 50% of JCU (Canada) Exploration Company, Limited (“JCU”) from UEX Corporation (“UEX”)
On August 3, 2021, Denison acquired 50% ownership of JCU from UEX for cash consideration of $20.5 million. JCU holds a portfolio of twelve uranium project joint venture interests in Canada, including a 10% interest in Wheeler River, a 30.099% interest in the Millenium project, a 33.8123% interest in the Kiggavik project and a 34.4508% interest in the Christie Lake project.
On August 3, 2021, UEX acquired 100% of JCU from OURD for $40.5 million, which was funded by Denison providing UEX an interest-free term loan for three-months in the amount of $41.0 million (“UEX Term Loan”). Half of the amount owing from UEX to Denison was settled on the transfer of 50% of the shares of JCU to Denison, with UEX continuing to owe Denison $20.5 million. The UEX Term Loan is secured by all of the shares of JCU owned by UEX. UEX may extend the term of the loan by an additional three months, in which case interest will be charged at a rate of 4% from the original start date of the UEX Term Loan.
Denison and UEX have entered into a shareholder’s agreement which governs the operating activities of JCU, including provisions for future funding, dilution and the resolution of management deadlock situations.
At June 30, 2021, Denison has capitalized $76,000 of transaction costs related to the JCU acquisition on its statement of financial position.
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