After hitting a high of 1.95 last month shares of Denison Mines Corp (TSX: DML.TO) have been on a steady decline, sinking to a low of 1.39 on Friday with little hope of an immediate recovery. At their current level of 1.40 shares of DML.TO are below their 50-day moving average of 1.60 as well as their 200-day moving average of 1.54 and while there have been reports suggesting that the price of uranium will pick up in the near future those reports have done little to stabilize Denison’s descent.
On Thursday it was reported that DML.TO would only start developing its planned uranium mine in Zambia when prices for uranium rose to levels above $65 per lb. Given the fact that spot uranium prices remain around the $51 level and contract prices are below $60 shareholders of DML.TO could still be in for a long wait.
Of course DML.TO doesn’t just have the luxury of waiting for the price of uranium to climb as they’ve delayed the development of their Muntanga project in Zambia for three years now and could potentially have their license revoked by the Zambian government if progress isn’t made soon.
According to Andrew Goode, Denison’s project director for Africa, “We need prices that are above $65 per lb of uranium oxide to make the Muntanga project feasible.” Goode also stated in a Reuters report “we have very strong indicators that uranium prices will start improving in late 2013,” but it doesn’t look like investors are willing to sink their money into DML.TO to find out.
Even with the news that Japan had decided to restart their reactors following the devastating earthquake and tsunami that struck in 2011 and reports that China is preparing to pick up their nuclear power expansion plans DML.TO has seen little in the way of benefits related to this news. While much is being made about Japan’s decision to restart their reactors it should be remembered that Japan isn’t exactly thrilled with the idea, they simply want to limit electricity shortages and the prospect of rationing power supplies through the approaching summer months. They this don’t see this as a long-term solution.
The only news that has been beneficial to DML.TO shares came to the surface in late May when it was reported that Cameco Corp. (TSX: CCO.TO) could be looking to expand their own uranium production efforts and acquire a company like Denison. Upon those reports shares of DML.TO spiked from a low of 1.39 to a high of 1.75 within a few days but all of those gains have been lost.
There is also the matter of the definitive arrangement agreement Energy Fuels Inc. (TSX: EFR.TO) in which Energy Fuels will acquire all of the shares of the subsidiaries holding Denison’s U.S. mining assets and operations as well as all of the inter-company debt between Denison and the US Mining Division. This deal has yet to be ratified and finalized, leaving shareholders in limbo at this point.
Details of this Arrangement include:(i) Denison will transfer the US Mining Division and related inter-company debt to Energy Fuels in exchange for a promissory note and a nominal amount of cash, (ii) Denison will complete a reorganization of its capital which will include a distribution of the promissory note to its common shareholders on a pro rata basis, and (iii) Energy Fuels will repay the promissory note by issuing 425,441,494 of its common shares to Denison’s shareholders. Upon the completion of the Transaction, Denison’s shareholders will receive approximately 1.106 common shares of Energy Fuels for each common share of Denison owned and will in aggregate own approximately 66.5% of the issued and outstanding common shares of Energy Fuels.
At the end of the day shareholders want some concrete answer to what’s happening with the Muntanga project in Zambia. This is a project that DML.TO was to sink $118 million into, intending to mine about 18.8 million tonnes of uranium ore and then process the ore into uranium oxide concentrate. With this project on hold there is little shareholders can do other than hope.
