Denison Mines Corp (NYSE:DNN) (TSX:DML) has been very busy of late. At the end of January, the Saskatchewan-based uranium exploration company announced the discovery of high-grade uranium mineralisation at its flagship Wheeler River Uranium Project.
The Wheeler River Project, of which 90% is owned by Denison, hosts the Phoenix and Gryphon uranium deposits and ranks as the largest undeveloped high-grade uranium project in the eastern portion of the Athabasca Basin region.
Hot on the heels of the uranium discovery, Denison Mining announced a second round of capital raising in a few months, in a bought deal public offering for $28.75 million. The previous round in October 2020 raised $20 million. Both capitalisations are to fund future evaluation and environmental assessment activities for the Wheeler River Project. Denison’s share of the evaluation costs as of end September 30, 2020 were $2.42 million.
Denison Mines announces plans to ramp up Phoenix evaluation
No surprise then, that the firm has announced that they will ramp up evaluation at the Phoenix uranium deposit site in 2021. The plan is to include additional field-testing activities to support the further de-risking of the application of the In-Situ Recovery (ISR) mining method. ISR involves leaving the ore where it is in the ground, and recovering the minerals from it by dissolving them and pumping the solution to the surface where the minerals can be recovered.
The main objectives of the 2021 ISR field program are to further evaluate, confirm and model the hydrogeological characteristics of the Phoenix ore body, finalise the production well design pattern, confirm cost estimates and designs for commercial-scale wells, validate permeability enhancement options, and provide the necessary datasets for the permitting and preparation of a lixiviant test in 2022.
According to David Cates, Denison’s president and CEO, as an ISR operation, Phoenix could become the lowest cost uranium mine in the world. He anticipates production costs to be as low as $8.90 per lb, generating a base-case pre-tax IRR of 43.3%.
Phoenix and the Wheeler River Project is not the firm’s only exploration. Denison’s portfolio covers around 250,000 hectares of the Athabasca Basin and also includes a 22.5% ownership interest in the McClean Lake joint venture which also includes several uranium deposits.
Is now a good time to buy shares in Denison?
Denison Mines is still in the exploration stages and the firm does not anticipate starting production until 2024, so would not look to make a profit until then. This is also because it has not been economically viable to mine for uranium because the price has been too low: it is around $30 currently but has historically reached almost $100 per lb.
Plus, Denison’s share price is volatile; its 52-week high was $1.80 although it went as low as 19 cents. At time of writing, it is $1.10 per share. Investing in uranium at any time is not for the faint-hearted.
Nevertheless, from a fundamental perspective, there are reasons to invest. Uranium inventories are now at what many consider to be their lowest levels and the industry could be about to enter a new contracting cycle. Many power plants in the US for example are coming to the end of their contracts and need to re-negotiate.
Added to this is the fact that nuclear capacity is expected to rise for the foreseeable future as global energy demand, mainly in China and India, is projected to increase – according to the World Nuclear Association, China is intending to build 16 nuclear reactors by 2026. As a result, we could see upward pressure on prices. If this is the case, we hope Denison is ready to take the advantage.