Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Denison Mines (TSX: DML; NYSE: DNN) is raising $75 million for the “strategic acquisition” of physical uranium, an initiative the company expects to support the development of its 90%-owned Wheeler River uranium project in Saskatchewan’s Athabasca Basin.
Denison aims to accumulate about 2.5 million lb. of U3O8 as a long-term investment.
In a release, the company said it expects the purchase will strengthen its balance sheet and enhance its ability to access project financing, potentially by using the holdings as collateral.
The uranium could also give Denison increased flexibility to negotiate long-term supply arrangements with future customers along with production from Wheeler River, if the in-situ recovery project is developed.
“The physical uranium holdings that we expect to acquire will represent a sizeable portion of Denison’s share (2018 prefeasibility study) of the expected C$290 million of initial capital costs for Wheeler River,” said David Cates, President and CEO of Denison in a release. “As a result, we expect this transaction to enhance the long-term financial stability of the company, as we advance towards a definitive development decision.”
The offering of 68.2 million units priced at $1.1 per unit (one share and half a warrant), is expected to close Mar. 22. An additional over-allotment of 10.2 million units could bring in another $11.3 million. Cantor Fitzgerald is the lead underwriter.
Spot uranium prices are currently under $27.50 per lb. after reaching a 2020 high of $34 per lb. amid supply disruptions last March and April. Going into the pandemic, the price had languished at around $25 per lb. for nearly a year.
“Public support for carbon-free, base-load nuclear energy continues to grow as part of the clean energy-transition movement,” Cates said. “With the uranium market showing continued signs of incremental improvement in supply and demand fundamentals, this strategic financing is being undertaken at an ideal time for Denison – supporting the opportunistic acquisition of physical uranium to hold as a long-term strategic capital asset.”
Cates noted that other publicly traded uranium companies have also disclosed sizeable physical uranium purchases in recent years, adding: “We have broken the conventional equity dilution model for mining development companies.”
US-based developer Uranium Energy (NYSE: UEC) has also announced it is purchasing physical uranium. The company has made agreements totalling $10.9 million to purchase 400,000 lb. of US-housed uranium.
“Despite our focus on low cost in-situ recovery mining with its low capital requirements, we see a unique opportunity to purchase drummed uranium at prevailing spot prices which are below most global industry mining costs,” said Amir Adnani, Uranium Energy president and CEO in a release.
Uranium Energy holds several in-situ uranium projects and the Hobson processing facility in Texas, as well as a 19.5% stake in Uranium Royalty Corp. (TSXV: URC).
It expects the inventory to bolster its balance sheet as uranium prices appreciate, provide strategic inventory to support future marketing efforts with utilities, and increase availability of its US production capacity in Texas and Wyoming for emerging US-origin specific opportunities.
(This article first appeared in the Canadian Mining Journal)
