TORONTO, Sept. 24, 2018 /CNW/ - Denison Mines Corp.
("Denison" or the "Company") (DML: TSX, DNN: NYSE American) is
pleased to announce the results of the Pre-Feasibility Study
("PFS") on its flagship Wheeler River uranium project ("Wheeler
River") in northern Saskatchewan. The PFS has been completed
in accordance with NI 43-101 and is highlighted by the selection of
the in-situ recovery ("ISR") mining method for the development of
the Phoenix deposit, with an
estimated average operating cost of $4.33 (US$3.33) per
pound U3O8. View PDF version.
The PFS considers the potential economic merit of co-developing
the Phoenix and Gryphon deposits.
The high-grade Phoenix
deposit is designed as an ISR mining operation, with associated
processing to a finished product occurring at a plant to be built
on site at Wheeler River. The Gryphon deposit is designed as
an underground mining operation, utilizing a conventional long hole
mining approach with processing of mine production assumed at
Denison's 22.5% owned McClean Lake mill. Taken together, the
project is estimated to have mine production of 109.4 million
pounds U3O8 over a 14-year mine life, with a
base case pre-tax Net Present Value ("NPV") of $1.31 billion (8% discount rate), Internal Rate
of Return ("IRR") of 38.7%, and initial pre-production capital
expenditures of $322.5
million.
The base-case economic analysis assumes uranium sales are made
at UxC Consulting Company, LLC's ("UxC") annual estimated spot
price for mine production from the Phoenix deposit (from ~US$29/lb U3O8 to
US$45/lb U3O8),
and a fixed price for mine production from the Gryphon deposit
(US$50/lb
U3O8).
Using the same price assumed for the project's 2016 Preliminary
Economic Assessment ("2016 PEA"), a fixed uranium price of
US$44/lb U3O8
("PEA Reference Case"), the PFS produces a combined pre-tax project
NPV of $1.41 billion – representing a
roughly 275% increase from the $513
million pre-tax project NPV estimated in the 2016 PEA.
The PFS is prepared on a project (100% ownership) and pre-tax
basis, as each of the partners to the Wheeler River Joint Venture
("WRJV") are subject to different tax and other obligations.
After-tax results attributable to Denison's ownership interest are
provided under the heading "Indicative Denison Post-Tax Results".
All amounts are in Canadian dollars unless otherwise
noted.
David Cates, President and CEO of
Denison, commented "The selection of ISR mining for the
high-grade Phoenix deposit is a
defining moment for our Company and a potentially transformational
development for the future of uranium mining in the Athabasca Basin – bringing the world's lowest
cost uranium mining method to the jurisdiction hosting the world's
highest-grade uranium deposits."
Mr. Cates further added, "Based on an estimated production
cost of US$3.33/lb
U3O8 and relatively modest initial capital
costs, the Phoenix operation is
expected to have superior leverage to an anticipated recovery of
the spot price of uranium – owing to the fact that the operation
may not require a book of long-term contracts to support a
development decision. The Gryphon deposit is a perfect
complement to Phoenix, as it is
expected to supply additional low-cost pounds, financed through
cash flow from Phoenix, at a time
when the uranium market is expected to be in a significant supply
deficit."
Conference Call
The Company will host a conference call and live webinar on
Tuesday September 25, 2018 at
8:15 a.m. Eastern Daylight Time.
During the call, management will provide an overview of the results
of the PFS and will also accept questions from analysts and other
participants. To join the call please dial (604)
638-5340 (Local/International) or 1-800-319-4610 (North
America Toll Free).
To access the conference call and live webinar via the internet,
please use the following link prior to the start of the call:
http://services.choruscall.ca/links/denisonmines20180925.html
A recorded version of the conference call will be available on
our website (www.denisonmines.com) shortly after the call, or by
telephone via the following playback numbers (604) 674-8052
(Local/International) or 1-855-669-9658 (North America Toll Free)
using the access code, 2611.
Pre-Feasibility Study Highlights
- Phoenix delivers
exceptional operating costs and manageable initial capex with
ISR
Mine life
|
10 years (6.0
million lbs U3O8 per year on
average)
|
Probable
reserves(1)
|
59.7 million lbs
U3O8 (141,000 tonnes at 19.1%
U3O8)
|
Average cash
operating costs
|
$4.33 (US$3.33)
per lb U3O8
|
Initial capital
costs
|
$322.5
million
|
Base case pre-tax
IRR(2)
|
43.3%
|
Base case pre-tax
NPV8%(2)
|
$930.4
million
|
Base case price
assumption
|
UxC spot
price(3) (from ~US$29 to US$45/lb
U3O8)
|
Operating profit
margin(4)
|
89.0% at US$29/lb
U3O8
|
All-in
cost(5)
|
$11.57 (US$8.90)
per lb U3O8
|
(1)
|
See below for
additional information regarding Probable
reserves;
|
(2)
|
NPV and IRR are
calculated to the start of pre-production activities for the
Phoenix operation in 2021;
|
(3)
|
Spot price
forecast is based on "Composite Midpoint" scenario from UxC's
Q3'2018 Uranium Market Outlook ("UMO") and is stated in constant
(not-inflated) dollars;
|
(4)
|
Operating profit
margin is calculated as uranium revenue less operating costs,
divided by uranium revenue. Operating costs exclude all
royalties, surcharges and income taxes;
|
(5)
|
All-in cost is
estimated on a pre-tax basis and includes all project operating
costs and capital costs, divided by the estimated number of pounds
U3O8 to be produced.
|
- Gryphon leverages existing infrastructure and provides
additional low-cost production
Mine life
|
6.5 years (7.6
million lbs U3O8 per year on
average)
|
Probable
reserves(1)
|
49.7M lbs
U3O8 (1,257,000 tonnes at 1.8%
U3O8)
|
Average cash
operating costs
|
$15.21
(US$11.70) per lb
U3O8
|
Initial capital
costs
|
$623.1
million
|
Base case pre-tax
IRR(2)
|
23.2%
|
Base case pre-tax
NPV8%(2)
|
$560.6
million
|
Base case price
assumption
|
US$50 per pound
U3O8
|
Operating profit
margin(3)
|
77.0% at US$50/lb
U3O8
|
All-in
cost(4)
|
$29.67 (US$22.82)
per lb U3O8
|
(1)
|
See below for
additional information regarding Probable
reserves;
|
(2)
|
NPV and IRR are
calculated to the start of pre-production activities for the
Gryphon operation in 2026;
|
(3)
|
Operating profit
margin is calculated as uranium revenue less operating costs,
divided by uranium revenue. Operating costs exclude all
royalties, surcharges and income taxes;
|
(4)
|
All-in cost is
estimated on a pre-tax basis and includes all project operating
costs and capital costs, divided by the estimated number of pounds
U3O8 to be produced.
|
- Selection of ISR mining method for high-grade Phoenix deposit – Following the completion
of the 2016 PEA, the Company evaluated 32 alternate mining methods
to replace the high-cost Jet Bore Mining System ("JBS") assumed for
the Phoenix deposit in the 2016
PEA. The suitability of ISR mining for Phoenix has been confirmed by significant work
completed in the field and laboratory – including drill hole
injection, permeability, metallurgical leach, agitation, and column
tests. Results demonstrate high rates of recovery in both
extraction (+90%) and processing (98.5%) following a simplified
flow sheet that precipitates uranium directly from the uranium
bearing solution ("UBS"), without the added costs associated with
ion exchange or solvent extraction circuits.
- Novel application of established mining technologies –
Given the unique geological setting of the Phoenix deposit, straddling the
sub-Athabasca unconformity in
permeable ground, the project development team has combined the use
of existing and proven technologies from ISR mining, ground
freezing, and horizontal directional drilling to create an
innovative model for in situ uranium extraction in the Athabasca Basin. While each of the
technologies are well established, the combination of technologies
results in a novel mining approach applicable only to deposits
occurring in a similar geological setting to Phoenix – which now represents the first
deposit identified for ISR mining in the Athabasca Basin.
- Environmental advantages of ISR mining at Phoenix – The Company's evaluation of the
ISR mining method for Phoenix has
also identified several significant environmental and permitting
advantages, namely the absence of tailings generation, the
potential for no water discharge to surface water bodies, and the
potential to use the existing Provincial power grid to operate on a
near zero carbon emissions basis. In addition, the use of a freeze
wall, to encapsulate the ore zone and contain the mining solution
used in an ISR operation, eliminates common environmental concerns
associated with ISR mining and facilitates a controlled reclamation
of the site. Taken together, the Phoenix operation has the potential to be one
of the most environmentally friendly mining operations in the
world. Owing largely to these benefits, consultation with
regulatory agencies and stakeholder communities, to date, has been
encouraging regarding the use of ISR mining.
Wheeler River Project
The Wheeler River project is the largest undeveloped uranium
project in the eastern portion of the Athabasca Basin region in northern
Saskatchewan, Canada. The
project is situated in close proximity to important regional
infrastructure, including the Provincial electrical transmission
grid and an all-season Provincial highway. Since Denison
became the operator of the project in 2004, two high-grade uranium
deposits have been discovered and now account for combined Mineral
Reserves and Mineral Resources as follows:
- Probable Mineral Reserves of 109.4 million pounds
U3O8 (Phoenix 59.7 million pounds
U3O8 from 141,000 tonnes at 19.1%
U3O8; Gryphon 49.7 million pounds
U3O8 from 1,257,000 tonnes at 1.8%
U3O8);
- Indicated Mineral Resources (inclusive of Reserves) of 132.1
million pounds U3O8 (1,809,000 tonnes at
an average grade of 3.3% U3O8); plus
- Inferred Mineral Resources of 3.0 million pounds
U3O8 (82,000 tonnes at an average grade
of 1.7% U3O8).
The PFS does not include any economic analysis based on
estimated Inferred Mineral Resources.
The project is a joint venture between Denison (63.3% and
operator), Cameco (26.7%), and JCU (Canada) Exploration Company Limited ("JCU")
(10%). Denison is increasing its ownership in the project to up to
90% under two recently announced agreements with Cameco.
See Denison press releases dated
January 10, 2017 and September 4, 2018 for details.
Pre-Feasibility Study Summary
The objective of the PFS is to assess the technical and economic
viability of achieving uranium production at Wheeler River. A
team of technical experts, including Stantec Consulting Inc.
(Gryphon shaft and mine design), Hatch Ltd. (McClean Lake mill
modifications), Woodard and Curran Inc. (Phoenix ISR wellfield and
mineral processing designs), Newmans Geotechnique Inc.
(Phoenix ground freezing design),
SRK Consulting (Environmental and social considerations, including
water treatment plant design), RPA Inc. (Mineral Resource
estimates), and ENGCOMP Engineering and Computing Professionals
Inc. (Surface infrastructure design), have been retained by Denison
to contribute to, and author, the PFS for the Wheeler River
project. The conclusion of the PFS process follows months of
engineering and trade-off studies carried out by the Company after
the completion of the 2016 PEA. The results from the 2016 PEA
informed the Company's focus during the PFS process and ultimately
led to the determination that a new mining method was warranted for
the development of the Phoenix
deposit.
The Phoenix ISR operation and Gryphon underground operation are
estimated to produce combined total mine production of 109.4
million pounds U3O8 over a 14-year mine
life. Pre-production activities are estimated to begin in
2021, assuming receipt of required regulatory approvals, with first
production from the Phoenix
deposit expected in 2024.
Table 1 – Wheeler
River PFS Financial Results (100% Basis)
|
Base case pre-tax
NPV8%(1)
|
$1.31
billion
|
Base case pre-tax
"IRR (1)
|
38.7%
|
Base case pre-tax
payback period(2)
|
~24
months
|
Initial capital
costs(3)
|
$322.5
million
|
Average annual mine
production
|
7.8 million lbs
U3O8
|
Mine life
|
14
years
|
Exchange
rate(4) (US$:CDN$)
|
1:1.30
|
Discount
rate
|
8.00%
|
(1)
|
NPV and IRR are
calculated to the start of pre-production activities for the
Phoenix operation in 2021;
|
(2)
|
Payback period is
stated as number of months to pay-back from the start
of uranium production;
|
(3)
|
Initial capital
costs for the Wheeler River project are the initial capital costs
estimated for Phoenix;
|
(4)
|
Exchange rate
applied on uranium sales.
|
Table 2 –
Wheeler River Reserve Statement (100% Basis)
|
Deposit
|
Classification
|
Tonnes
|
Grade
|
Lbs
U3O8
|
Phoenix
|
Probable
|
141,000
|
19.1%
|
59.7
million
|
Gryphon
|
Probable
|
1,257,000
|
1.8%
|
49.7
million
|
Total
|
Probable
|
1,398,000
|
3.5%
|
109.4
million
|
|
Notes:
|
(1)
|
Reserve statement
is as of September 24, 2018;
|
(2)
|
CIM definitions
(2014) were followed for classification of mineral
reserves;
|
(3)
|
Mineral reserves
for the Phoenix deposit are reported at the mineral resource
cut-off grade of 0.8% U3O8. The mineral
reserves are based on the block model generated for the May 28,
2014 mineral resource estimate. A mining recovery factor of 85% has
been applied to the mineral resource above the cut-off
grade;
|
(4)
|
Mineral reserves
for the Gryphon deposit are estimated at a cut-off grade of 0.58%
U3O8 using a long-term uranium price of
USD$40/lb, and a USD$/CAD$ exchange rate of 0.80. The mineral
reserves are based on the block model generated for the January 30,
2018 mineral resource estimate. The cut-off grade is based on
an operating cost of CAD$574/tonne, milling recovery of 97%, and
7.25% fee for Saskatchewan royalties;
|
(5)
|
Mineral reserves
include diluting material and mining losses;
|
(6)
|
Mineral reserves
are stated at a processing plant feed reference
point;
|
(7)
|
Numbers may not
add due to rounding.
|
The PFS has been completed in accordance with NI 43-101,
Canadian Institute of Mining, Milling and Petroleum (CIM) standards
and best practices, as well as other standards such as the AACE
Cost Estimation Standards. The NI 43-101 technical report,
supporting the PFS results included in this news release, is in the
process of being finalized and will be provided to the WRJV
partners for their review in connection with an upcoming management
committee meeting and filed under Denison's profile on SEDAR within
45 days of this release. This press release expresses the
views and opinions of Denison, as operator of the WRJV, and does
not necessarily represent the views of the individual WRJV
partners.
Price Assumptions & Sensitivities
The base-case economic analysis assumes uranium sales from
Phoenix mine production will be
made from time to time throughout production at UxC's forecasted
annual "Composite Midpoint" spot price from the Q3'2018 Uranium
Market Outlook ("UMO"), which is stated annually in constant
(non-inflated) 2018 dollars and
ranges from ~US$29/lb
U3O8 to US$45/lb U3O8 during the 10
year estimated life of the Phoenix
operation. For mine production from the Gryphon operation, a fixed
price of US$50/lb
U3O8 has been assumed for uranium
sales.
The base-case pricing scenario is intended to be representative
of how Denison expects to evaluate the business case for advancing
development of each of the proposed Phoenix and Gryphon operations. The
Phoenix operation is not expected
to require substantial contract base loading to justify development
– given estimated operating costs of US$3.33/lb U3O8, resulting
in highly attractive operating profit margins (+90%) with the
ability to absorb the price variability associated with the uranium
spot market. While the Gryphon operation is also expected to
have low operating costs (US$11.70/lb
U3O8), its overall cost profile is considered
to be more amenable to fixed (base escalated) price contracts with
nuclear energy utilities, in order to reduce risk and justify a
development decision.
Additional pricing scenarios are provided using a project wide
fixed selling price of US$44/lb
U3O8 (the "PEA Reference Case"), to
facilitate comparison to the 2016 PEA, and at US$65/lb U3O8 (the "High
Case"), to illustrate the potential for the project to benefit from
rising uranium prices.
Table 3 –
Sensitivity of Wheeler River to Uranium Pricing Scenarios (100%
Basis)
|
|
Base
Case
|
PEA Ref.
Case
|
High
Case
|
Uranium
price
|
As
above
|
US$44.00/lb
U3O8
|
US$65.00/lb
U3O8
|
Pre-tax
NPV8%(1)
|
$1.31
billion
|
$1.41
billion
|
$2.59
billion
|
Pre-tax
IRR(1)
|
38.7%
|
47.4%
|
67.4%
|
Pre-tax payback
period(2)
|
~24
months
|
~ 15
months
|
~ 11
months
|
|
|
(1)
|
NPV and IRR are
calculated to the start of pre-production activities for
the Phoenix operation in
2021;
|
(2)
|
Payback period is
stated as number of months to pay-back from the start of uranium
production.
|
The Phoenix Operation
Overview
- Phoenix is a unique high-grade
Athabasca Basin deposit amenable
to ISR mining;
- Test results indicate strong ISR well field (+90%) and
processing (98.5%) recoveries with UBS concentrations in the 12 to
20 grams per litre (g/l) range – leading to simplified on-site
processing plant design, without ion exchange or solvent extraction
circuits;
- Expected mine life of 10 years with total mine production of
59.7 million pounds U3O8 and an annual
average mine production rate of approximately 6.0 million pounds
U3O8;
- Estimated to have exceptionally low operating costs
(US$3.33/lb
U3O8), and comparatively low upfront capital
costs for a large-scale uranium mining operation;
- Opportunity to be one of the most environmentally friendly
mining operations in the world, owing to minimal surface
disturbance, no tailings generation, potential for no water
discharge, a controlled restoration process, and access to the
Provincial power grid – resulting in a potentially near zero carbon
emission mine site during operations;
- Elimination of key ISR concerns by using a freeze cap to
contain mining solutions during operations and to facilitate the
restoration process; and
- Short timeline to production with the capability to scale
production to meet market demands.
Table 4 –
Phoenix Operation Summary of Economic Results
|
|
Base
Case
|
High
Case
|
Uranium selling
price
|
UxC Spot
Price(1)
|
US$65/lb
U3O8
|
Operating profit
margin(2)
|
91.4%
|
95.0%
|
Pre-tax
NPV8%(3) (100%)
|
$930.4
million
|
$1.91
billion
|
Pre-tax
IRR(3)
|
43.3%
|
71.5%
|
Pre-tax payback
period(4)
|
~21
months
|
~ 11
months
|
(1)
|
Spot Price is
based on the "Composite Midpoint" spot price scenario from UxC's
UMO;
|
(2)
|
Operating profit
margin is calculated as aggregate uranium revenue less aggregate
operating costs, divided by aggregate uranium revenue.
Operating costs exclude all royalties, surcharges and income
taxes;
|
(3)
|
NPV and IRR are
calculated to the start of pre-production activities for
the Phoenix operation in
2021;
|
(4)
|
Payback period is
stated as number of months to pay-back from the
start of uranium production.
|
Table 5 –
Phoenix Operating Cost per Pound
U3O8
|
|
CDN$
|
US$
|
Mining /
Wellfield
|
0.75
|
0.58
|
Milling /
Processing
|
1.97
|
1.51
|
Transport to
converter
|
0.21
|
0.16
|
Site support and
administration
|
1.40
|
1.08
|
Total Operating
Costs per pound U3O8
|
$4.33
|
$3.33
|
Table 6 –
Phoenix Capital Costs ($ millions)
|
|
Initial
|
Sustaining
|
Total
|
Wellfield
|
63.7
|
35.4
|
99.1
|
ISR processing
plant
|
50.9
|
4.6
|
55.5
|
Water treatment
plant
|
1.3
|
18.7
|
20.0
|
Surface
facilities
|
22.3
|
0.1
|
22.4
|
Utilities
|
6.5
|
0.8
|
7.3
|
Electrical
|
18.8
|
-
|
18.8
|
Civil &
earthworks
|
44.3
|
1.3
|
45.6
|
Offsite
infrastructure
|
8.0
|
-
|
8.0
|
Decommissioning
|
-
|
27.5
|
27.5
|
Subtotal – Direct
Costs
|
215.8
|
88.4
|
304.2
|
Indirect
costs
|
28.3
|
5.7
|
34.0
|
Other (Owner's)
costs
|
14.2
|
-
|
14.2
|
Contingency
|
64.2
|
9.4
|
73.6
|
Total Capital
Costs (100%)
|
322.5
|
103.5
|
426.0
|
Deposit & Geology
The Phoenix deposit is the
highest-grade undeveloped uranium deposit in the world,
geologically situated at or immediately above the unconformity
between the Athabasca Basin
sandstone and older basement rocks, approximately 400 metres below
surface. Mineralization has been defined over a strike length of
approximately one kilometre and is coincident with a significant
steeply dipping fault zone. A total of 196 drill holes have
delineated two distinct zones (A and B) of high-grade uranium
mineralization lying horizontally along the unconformity. At a
cut-off grade of 0.8% U3O8 the Phoenix deposit is estimated to contain
Indicated Mineral Resources of 166,400 tonnes, at a grade of 19.14%
U3O8 for a total of 70.2 million pounds
U3O8, plus Inferred Mineral Resources of
8,600 tonnes at a grade of 5.80%
U3O8 for a total of 1.1 million pounds
U3O8. For further details, see the
Company's report entitled "Technical Report with an Updated Mineral
Resource Estimate for the Wheeler River Property, Northern Saskatchewan, Canada" dated
March 15, 2018 (the "Resource
Report"), as filed on SEDAR and available on the Company's
website. Mineral resources that are not mineral reserves do
not have demonstrated economic viability.
Selection of ISR Mining Method
After completion of the 2016 PEA, Denison initiated a detailed
review of the development plan for the Phoenix deposit – which had been designed as
an underground mine using JBS mining as the extraction technology.
The 2016 PEA identified disadvantages associated with JBS mining,
including technical risk, comparatively high operating and capital
costs, as well as long pre-production construction timelines.
Accordingly, following completion of the 2016 PEA, Denison
initiated an extensive review process, seeking suitable alternative
mining methods for the Phoenix
deposit. A total of 32 different mining methods were identified,
reviewed, and subsequently shortlisted through an increasingly
rigorous evaluation process. ISR mining was ultimately selected as
the preferred mining method due to significant economic,
environmental, and technical advantages.
ISR Mining Process
ISR mining has become the industry leading low-cost uranium
production method globally – following on from initial use in the
1960s to extensive use at present in Kazakhstan (the world's largest and lowest
cost producer of uranium), the United
States, China, Russia, and Australia, amongst others. ISR mining is
amenable to uranium deposits in certain sedimentary formations and
is well known in the industry for comparatively minimal surface
impact, high production flexibility, and low operating and capital
costs. In 1998, ISR mining represented roughly 13% of global
uranium production, increasing rapidly to the point where today it
is estimated to account for over 50% of global uranium
production. There has been continuous development and
improvement of ISR mining techniques in past years, particularly in
the two decades since the International Atomic Energy Agency
("IAEA") published the Manual of Acid In-Situ Leach Uranium Mining
Technology (IAEA-TECDOC-1239).
ISR mining involves recovery of uranium by pumping a mining
solution (also referred to as a "lixiviant") through an
appropriately permeable orebody. The method eliminates the need to
physically remove ore and waste from the ground – thus eliminating
the related surface disturbance and tailings normally related to
underground or open pit operations. The mining solution dissolves
the uranium as it travels through the ore zone – effectively
reversing the natural process that originally deposited the
uranium. The mining solution is injected into the ore zone through
a series of four-inch cased drill holes called injection wells and
pumped back to surface via a similar series of recovery wells. Once
on surface, the UBS is sent to a surface processing plant for the
chemical separation of the uranium. Following the uranium removal,
the mining solution is reconditioned (often referred to as the
barren mining solution) and returned back to the well field for
further production.
While ISR mining is not currently being used in Canada for uranium mining, the Phoenix deposit has all the attributes
necessary to be a successful ISR operation, as outlined below:
- Mineralization that is situated in permeable ground, allowing
the mining solution to travel from the injection well through the
orebody and ultimately back to surface via a recovery well;
- Mineralization that is readily dissolvable by the mining
solution; and
- Mineralization that is within a setting which allows for
containment of the mining solution – such that the mining solution
can be recovered without contaminating the environment or being
diluted by natural ground water.
Many of the large undeveloped uranium deposits discovered in the
Athabasca Basin in recent years
(namely Arrow, Triple R, Gryphon, Millennium, and Roughrider) are
hosted within basement rocks, which are not amenable to ISR mining
due to the low permeability of the host rock.
As ISR mining is a novel mining method for the Athabasca Basin, there is risk that the
Company may not be able to complete ISR operations as outlined in
the PFS and/or that the costs could be materially different than
estimated.
Phoenix Freeze Cap
In conventional ISR operations, containment of the mining
solution is typically achieved by naturally impermeable bounding
layers in the geological strata and/or by creating a natural
drawdown (via pumping) of the water table towards the ore
zone. At Phoenix, there is a natural impermeable layer below
the deposit, in the form of a competent package of basement rocks,
but the deposit is otherwise hydraulically connected to the vast
regional groundwater system in the overlying sandstone formation
that defines the Athabasca Basin.
To contain the mining solution within the ore zones, an
artificial freeze cap is planned to encapsulate the deposit.
While this is a novel concept, ground freezing technology is well
established throughout the world and is already in use in the
Athabasca Basin in different
applications.
The freeze cap will be established by drilling parallel cased
holes from surface, starting at either end of the deposit and
travelling horizontally along the long axis of the deposit
anchoring into the impermeable basement rock on the opposite end of
the deposit. This is expected to be achievable using modern
directional drilling techniques. Circulation of a low
temperature brine solution through the cased drill holes will
freeze the groundwater within the sandstone rock and ultimately
create an impermeable freeze wall, expected to be roughly 10 metres
thick, surrounding the deposit on all sides and above, without
freezing the actual ore zone.
Due to the novel approach proposed for drilling of the freeze
holes, there is risk that the Company may not be able to complete
drilling as planned, which could materially increase cost
estimates.
See Figure 1 for illustration of Phoenix freeze cap
Processing of UBS
In certain conventional low-grade ISR operations, the
concentration of uranium within the UBS recovered from the well
field can range from 30 to 50 milligrams per litre (mg/L), which
requires the use of ion exchange or solvent extraction processing
circuits to concentrate the uranium and remove impurities for
efficient precipitation processes. The volumes of UBS subject to
processing are also typically quite large, due to the low-grade
nature of the orebodies and the low level of uranium contained in
the UBS recovered from the well fields.
As part of the PFS process, Denison completed numerous
metallurgical test programs to simulate the ISR mining process, in
accordance with industry standards – including leach tests,
agitation leach tests, column tests, and post mining column
restoration tests. All testing has indicated that the Phoenix ore is readily leached with a low pH
(acid) solution, producing insignificant levels of impurities (i.e.
arsenic, selenium) and very high levels of uranium recovery
(98.5%).
Due to the high-grade nature of the Phoenix deposit, leach tests and column tests
have consistently returned uranium concentrations within the UBS
recovered from Phoenix samples
between 12 and 20 grams per litre (g/L) – which is significantly
higher than the level of uranium contained in the UBS recovered
from certain conventional low-grade ISR well fields. At this
level of concentration, much smaller volumes of UBS require
processing in surface facilities. As a result of the high uranium
concentration and low levels of impurities expected in the UBS,
direct precipitation of the uranium is viable – which eliminates
the need for ion exchange or solvent extraction circuits, and
translates into reduced capital costs, reagent consumption, and
operating costs during operations.
The PFS calls for the construction of a processing plant on the
Wheeler River site, which has been designed to receive UBS from the
well field with a uranium concentration of 10 grams per litre and
with total throughput of 500 litres per minute. Taken together,
this would allow for up to 6 million pounds
U3O8 in annual production. The processing
plant for Phoenix is designed as a
closed loop system, meaning that once the uranium is precipitated
from the UBS, the mining solution is reconditioned with reagents
and returned to the wellfield for re-injection and further mining.
The use of the freeze cap and simplified processing plant design
eliminates the need for discharge of effluent during the
process.
The simplified process flowsheet and processing plant design is
based on the testing described above. There is risk that the
Company may not be able to achieve estimated results or may require
additional processing steps beyond those currently designed. This
could have a material impact on project costs and economics.
See Figure 2 for Phoenix
process plant flow sheet sketch
Well Field Design
Conventional ISR roll-front uranium deposits are typically
spread out over several kilometers. The low-grade nature of these
deposits combined with well spacing, reagent consumption, and
surface piping and pumping distribution systems all contribute to
create economic thresholds which impact the viability of some
deposits. At Phoenix, the ore is
confined to a relatively small area (~1 kilometre x 50 metres) and
has proved readily leachable in laboratory testing. As a result,
infrastructure costs (number of wells, extent of surface piping
systems) and operating costs (reagent consumption) are expected to
be significantly reduced when compared to conventional low-grade
ISR operations – which are already generally regarded as the lowest
cost uranium mining operations.
The well field design included in the PFS assumes the use of
vertical recovery, injection, and monitoring wells, with a
hexagonal pattern of injection wells surrounding each recovery
well.
See Figure 3 for proposed Phoenix ISR well field
configuration
Table 7 –
Summary Phoenix ISR Wells
|
|
Number of
Wells
|
Drill
Metres
|
Recovery
Wells
|
94
|
40,420
|
Injection
Wells
|
199
|
85,570
|
Monitoring
Wells
|
17
|
7,310
|
Total
|
310
|
133,300
|
The Gryphon Operation
Overview
- Conventional underground mine amenable to low cost longhole
stoping;
- Expected mine life of 6.5 years with annual average mine
production of 7.6 million lbs U3O8;
- Estimated to have low operating costs (US$11.70/lb U3O8) –
generating a relatively high operating margin at current uranium
prices;
- Expectation to fund development by cash flow generated from the
Phoenix operation, providing the
Wheeler River project with further leverage to rising uranium
prices
Table 8 –
Gryphon Operation Summary of Economic Results
|
|
Base
Case
|
High
Case
|
Uranium selling
price
|
US$50/lb
U3O8
|
US$65/lb
U3O8
|
Operating profit
margin(1)
|
77.0%
|
82.3%
|
Pre-tax
NPV8%(2)
|
$560.6
million
|
$998.8
million
|
Pre-tax
IRR(2)
|
23.2%
|
31.0%
|
Pre-tax payback
period(3)
|
~ 37
months
|
~ 31
months
|
(1)
|
Operating profit
margin is calculated as aggregate uranium revenue less aggregate
operating costs, divided by aggregate uranium revenue.
Operating costs exclude all royalties, surcharges and income
taxes;
|
(2)
|
NPV and IRR are
calculated to the start of pre-production activities for the
Gryphon operation in 2026;
|
(3)
|
Payback period is
stated as number of months to pay-back from the
start of uranium production.
|
Table 9 –
Gryphon Operating Cost per Pound
U3O8
|
|
CDN$
|
US$
|
Mining
|
5.46
|
4.20
|
Milling
|
8.45
|
6.50
|
Transport to
Converter
|
0.21
|
0.16
|
Site support and
administration
|
1.09
|
0.84
|
Total Operating
Costs per pound U3O8
|
$15.21
|
$11.70
|
Table 10 –
Gryphon Capital Costs ($ millions)
|
|
Initial
|
Sustaining
|
Total
|
Shafts
|
131.5
|
-
|
131.5
|
Surface
facilities
|
46.9
|
6.1
|
53.0
|
Underground
|
49.7
|
68.7
|
118.4
|
Utilities
|
3.9
|
0.3
|
4.2
|
Electrical
|
3.6
|
-
|
3.6
|
Civil &
earthworks
|
11.8
|
0.5
|
12.3
|
McClean Lake mill
upgrades
|
49.9
|
-
|
49.9
|
Offsite
infrastructure
|
32.4
|
-
|
32.4
|
Decommissioning
|
-
|
1.6
|
1.6
|
Subtotal – Direct
Costs
|
329.7
|
77.2
|
406.9
|
Indirect
costs
|
142.0
|
5.1
|
147.1
|
Other (Owner's)
costs
|
28.1
|
-
|
28.1
|
Contingency
|
123.3
|
0.4
|
123.7
|
Total Capital
Costs (100%)
|
623.1
|
82.7
|
705.8
|
Deposit & Geology
The Gryphon uranium deposit is located approximately three
kilometres to the northwest of the Phoenix deposit and occurs 520 to 850 metres
below surface dominantly within competent basement rocks. The
Gryphon deposit has an overall strike length of 610 metres, dip
length of 390 metres and variable thickness from 2 to 70 metres
depending on the number of mineralized lenses present. The A, B and
C series of lenses comprise of stacked, parallel lenses, which
plunge to the northeast along a fault zone ("G-Fault") that occurs
between the hanging wall graphite-rich pelitic gneisses and a more
competent pegmatite-dominated footwall. The D series of lenses
occur within the pegmatite-dominated footwall along a secondary
fault zone ("Basal Fault") or within extensional relay faults which
link to the G-Fault. The E series of lenses occur along the
G-Fault, up-dip and along strike to the northeast of the A and B
series lenses, within the upper basement or at the sub-Athabasca unconformity. Taken together, the
Gryphon deposit, at a cut-off grade of 0.2%
U3O8, is estimated to contain Indicated
Mineral Resources of 1,643,000 tonnes, at a grade of 1.7%
U3O8 for a total of 61.9 million pounds
U3O8, plus Inferred Mineral Resources of
73,000 tonnes at a grade of 1.2%
U3O8 for a total of 1.9 million pounds
U3O8. For further details, see the Company's
Resource Report, as filed on SEDAR and available on the Company's
website. Mineral resources that are not mineral reserves do not
have demonstrated economic viability.
Underground Mining via Longhole Stoping
The more moderate grades and style of mineralization within the
basement rocks of the Gryphon deposit have allowed for the
application of conventional underground mining methods, namely
longitudinal retreat longhole stoping. The Gryphon deposit is
centered ~270 metres below the unconformity, and the top of the
planned mining horizon is situated ~25 metres below the
unconformity, which is below the paleo weathering profile and is
expected to provide a permanent pillar to separate the underground
openings from the sandstone formations above. Engineering
assessments support a 15 metre sub-level interval with the use of
conventional remote-control equipment. Production is generally
constrained by mill capacity and as a result the mine design calls
for an average of ~600 tonnes per day production rate after a 2.5
year ramp-up period. The mineralization of the Gryphon
deposit's A, B and C series of lenses, which occur largely together
along the G-Fault, have been grouped together into the "Upper
Main", "Lower Main" and "Upper SW" zones for mine planning
purposes.
See Figure 4 for isometric cross section of Gryphon mine
Processing at 22.5% Denison Owned McClean Lake Mill
Production from the Gryphon operation is assumed to be processed
at the 22.5% Denison owned McClean Lake processing plant, located
in the northeastern portion of the Athabasca Basin region. The results of the
metallurgical test work program completed for the PFS indicate that
the Gryphon deposit is amenable to recovery utilizing the existing
McClean Lake Mill flowsheet under current operating conditions,
with an estimated recovery rate of 98.2%.
Due to the volume throughput expected from the Gryphon
operation, the McClean Lake Mill will require certain upgrades,
including expansion of the leaching circuit, the addition of a
filtration system to complement the existing Counter Current
Decantation (CCD) circuit, the installation of an additional
tailings thickener, and an expansion of the acid plant. Various
other small miscellaneous upgrades will also be required throughout
the mill to achieve production at the licensed capacity of the
facility (24 million pounds U3O8 per
year). The McClean Lake Mill received a new 10 year operating
license from the Canadian Nuclear Safety Commission in 2017 and is
currently processing 100% of the mine production from the Cigar
Lake mine under a toll milling agreement. The PFS assumes
that Cigar Lake production will decline from 18 million pounds
U3O8, at present, to approximately 15 million
pounds U3O8 (when mining Phase 2 of the
estimated resources) at the time of co-processing with ore from the
Gryphon operation. In order to assess compatibility with Gryphon
mill feed and to approximate the split of estimated mill operating
costs, various assumptions have been made in regards to the nature
and quantity of the mill feed from the Cigar Lake mine.
Denison's interest in the McClean Lake joint venture ("MLJV") does
not entitle the Company or the WRJV to process its mine production
at the facility in the absence of a toll milling agreement.
Accordingly, certain assumptions have been made regarding the
likelihood and terms of a toll milling agreement with the MLJV. The
estimated cost of production for Gryphon could be materially
different should processing not be available at an existing local
facility.
To facilitate access to the McClean Lake Mill from the Wheeler
River site, the PFS also carries certain costs of building an
extension to Highway 914 to connect the McArthur River and Cigar
Lake operations, and allow for a more direct transport of Gryphon
mine production to the McClean Lake mill over an approximately 160
kilometre route. Consultations with the Province of
Saskatchewan have been encouraging
in terms of participation in the project, as previously outlined on
page 35 of the 2012 Saskatchewan Government document "Saskatchewan
Plan for Growth – Vision 2020 and Beyond". The transportation of
mine production comes with certain environmental risks, but similar
operations in the region have long standing successful records of
operating safely and with positive environmental performance.
Site Infrastructure
The Wheeler River project is located near critical existing
infrastructure in the eastern portion of the Athabasca Basin, including the Provincial
power grid and Provincial Highway 914. Accordingly, the Wheeler
River site is expected to be connected to both the Provincial power
grid and road network with minimal effort. In the PFS, shared site
infrastructure costs are generally included in the initial capital
costs for the Phoenix operation,
and include the following:
- Five kilometre site road connecting the Phoenix camp to Highway 914;
- Five kilometre site power line and associated fixturing
connected to the Provincial power grid;
- Airstrip (1600 metres) to allow for transport of staff on a
planned two week-in, two week-out basis;
- 150 person camp with kitchen and recreational facilities;
- Site operations centre including maintenance shop, offices,
change house, and laboratories;
- Supplies warehousing and fuel storage facilities;
- Emergency / back-up power generators;
- Wash bay, scanning and weight scale facilities; and
- Potable and waste water treatment and waste storage
facilities.
See Figure 5 for Wheeler River site infrastructure layout
Indicative Denison Post-Tax Results
The PFS is prepared on a pre-tax basis, as each partner to the
WRJV is subject to different tax and other obligations. Denison has
completed an indicative post-tax assessment based on a variety of
its possible ownership interests – including its current ownership
interest (63.3%), its expected ownership interest by the end of
2018 under the January 2017 dilution
agreement (66.16%), and its expected ownership interest upon
completion of the September 2018
agreement to acquire 100% of Cameco's interest in the WRJV (90%).
Denison's indicative post-tax results also incorporate the impact
of expected toll mill fees recovered from its 22.5% interest in the
MLJV and the benefit of existing tax shelter balances.
Net Saskatchewan sales
royalties consist of the resource surcharge (3%), and the basic
uranium royalty (5%), which are partially offset by the resource
credit (0.75%). These amounts are included in the pre-tax NPV
calculations throughout the PFS; however, they are excluded from
the operating cost per pound U3O8 metrics, as
they vary with the value of assumed uranium sales. The profit from
operations is subject to an additional Provincial uranium profit
royalty, which is treated as an income tax, and allows for the use
of certain tax shelter balances.
Certain scenarios representing Denison's post-tax indicative
results for the Wheeler River project (including the Phoenix and Gryphon operations) are summarized
below and are based on the prevailing Federal and Provincial
taxation regulations in place at the time of the PFS.
Table 11 –
Denison Indicative Post-Tax Results (Wheeler
River)
|
|
63.3%
Denison
|
90.0%
Denison
|
|
|
|
Initial capital
costs
|
$204.1
million
|
$290.3
million
|
|
|
|
Base case post-tax
IRR(1)
|
31.8%
|
32.7%
|
Base case post-tax
NPV8%(1)
|
$506.4
million
|
$755.9
million
|
Base case post-tax
payback period(2)
|
~ 27
months
|
~ 26
months
|
|
|
|
High case post-tax
IRR(1)
|
53.9%
|
55.7%
|
High case post-tax
NPV8%(1)
|
$1.01
billion
|
$1.48
billion
|
High case post-tax
payback period(2)
|
~ 12
months
|
~ 12
months
|
(1)
|
NPV and IRR are
calculated to the start of pre-production activities for the
Phoenix operation in 2021.
|
(2)
|
Payback period is
stated as number of months to pay-back from the start
of uranium production.
|
Development Outlook
The results of the PFS demonstrate robust project economics –
notably based on a uranium spot price forecast for the Phoenix deposit. This represents a
comparatively conservative base case price assumption and supports
the near-term advancement of the project towards the initiation of
the Environmental Assessment ("EA") and permitting process, as well
as the completion of a Feasibility Study ("FS").
To date, Denison has completed several years of environmental
baseline studies and community consultations, as well as initial
assessments for the Wheeler River project and its associated
environmental interactions. The next step in the process is the
submission of a Project Description to initiate the formal
regulatory process through both the Federal and Provincial
regulatory agencies. It is estimated that the EA approval process
will require 3 to 4 years to complete, based on the regulations and
process currently applicable.
Activities associated with the FS are expected to involve the
confirmatory field and metallurgical testing for ISR operations at
Phoenix, followed by the
initiation of feasibility level engineering design work. Following
completion of a positive FS and a decision to advance the project
to the construction phase, detailed engineering and procurement
activities would commence in preparation for construction to begin
following receipt of all required regulatory approvals.
The PFS assumes that initial construction activities will
commence in 2021 and that first production will be achieved from
the Phoenix operation by mid-2024.
Initial construction is expected to commence at Gryphon by 2026 and
first production from Gryphon is expected to be achieved in
2030.
Qualified Persons
The disclosure of the results of the PFS contained in this
news release, including the mineral reserves, was reviewed and
approved by Peter Longo, P. Eng,
MBA, PMP, Denison's Vice-President, Project Development, who is a
Qualified Person in accordance with the requirements of NI
43-101.
The disclosure of a scientific or technical nature regarding
the Phoenix and Gryphon deposits,
including the mineral resources, contained in this news release was
reviewed and approved by Dale
Verran, MSc, P.Geo., Pr.Sci.Nat., Denison's Vice President,
Exploration, who is a Qualified Person in accordance with the
requirements of NI 43-101.
For a description of the data verification, assay procedures
and the quality assurance program and quality control measures
applied by Denison, please see Denison's Annual Information Form
dated March 27, 2018 filed under the
Company's profile on SEDAR at www.sedar.com.
About Denison
Denison is a uranium exploration and development company with
interests focused in the Athabasca
Basin region of northern Saskatchewan,
Canada. In addition to its 63.3% owned Wheeler River
project, which ranks as the largest undeveloped high-grade uranium
project in the infrastructure rich eastern portion of the
Athabasca Basin region, Denison's
Athabasca Basin exploration
portfolio consists of numerous projects covering approximately
320,000 hectares. Denison's interests in the Athabasca Basin also include a 22.5% ownership
interest in the McClean Lake joint venture ("MLJV"), which includes
several uranium deposits and the McClean Lake uranium mill, which
is currently processing ore from the Cigar Lake mine under a toll
milling agreement, plus a 25.17% interest in the Midwest and
Midwest A deposits, and a 65.45% interest in the J Zone deposit and
Huskie discovery on the Waterbury Lake property. Each of Midwest,
Midwest A, J Zone and Huskie are located within 20 kilometres of
the McClean Lake mill.
Denison is also engaged in mine decommissioning and
environmental services through its Denison Environmental Services
division and is the manager of Uranium Participation Corp., a
publicly traded company which invests in uranium oxide and uranium
hexafluoride.
Cautionary Statement Regarding Forward-Looking Statements
Certain information contained in this press release
constitutes "forward-looking information", within the meaning of
the United States Private Securities Litigation Reform Act of 1995
and similar Canadian legislation concerning the business,
operations and financial performance and condition of
Denison.
Generally, these forward-looking statements can be identified
by the use of forward-looking terminology such as "plans",
"expects", "budget", "scheduled", "estimates", "forecasts",
"intends", "anticipates", or "believes", or the negatives and / or
variations of such words and phrases, or state that certain
actions, events or results "may", "could", "would", "might" or
"will be taken", "occur", "be achieved" or "has the potential to".
In particular, this press release contains forward-looking
information pertaining to the results of, and estimates,
assumptions and projections provided in, the PFS, including future
development methods and plans, market prices, costs and capital
expenditures; the Company's current plans with respect to the
commencement and completion of an EA and feasibility study on the
project; assumptions regarding Denison's ability to obtain all
necessary regulatory approvals to commence development; Denison's
percentage interest in its projects and its agreements with its
joint venture partners; and the availability of services to be
provided by third parties. Statements relating to "mineral
resources" are deemed to be forward-looking information, as they
involve the implied assessment, based on certain estimates and
assumptions that the mineral resources described can be profitably
produced in the future.
Forward looking statements are based on the opinions and
estimates of management as of the date such statements are made,
and they are subject to known and unknown risks, uncertainties and
other factors that may cause the actual results, level of activity,
performance or achievements of Denison to be materially different
from those expressed or implied by such forward-looking statements.
Denison faces certain risks, including the inability to permit or
develop the project as currently planned, the unpredictability of
market prices, the use of mining methods which are novel and
untested in the Athabasca Basin,
events that could materially increase costs, changes in the
regulatory environment governing the project lands, and
unanticipated claims against title and rights to the project.
Denison believes that the expectations reflected in this
forward-looking information are reasonable but there can be no
assurance that such statements will prove to be accurate and may
differ materially from those anticipated in this forward looking
information. For a discussion in respect of risks and other factors
that could influence forward-looking events, please refer to the
"Risk Factors" in Denison's Annual Information Form dated
March 27, 2018 available under its
profile at www.sedar.com and its Form 40-F available at
www.sec.gov/edgar.shtml. These factors are not, and should not be
construed as being exhaustive.
Accordingly, readers should not place undue reliance on
forward-looking statements. The forward-looking information
contained in this press release is expressly qualified by this
cautionary statement. Any forward-looking information and the
assumptions made with respect thereto speaks only as of the date of
this press release. Denison does not undertake any obligation to
publicly update or revise any forward-looking information after the
date of this press release to conform such information to actual
results or to changes in its expectations except as otherwise
required by applicable legislation.
Cautionary Note to United States Investors Concerning
Estimates of Measured, Indicated and Inferred Mineral
Resources: This press release may use the terms
"measured", "indicated" and "inferred" mineral resources.
United States investors are
advised that while such terms are recognized and required by
Canadian regulations, the United States Securities and Exchange
Commission does not recognize them. "Inferred mineral resources"
have a great amount of uncertainty as to their existence, and as to
their economic and legal feasibility. It cannot be assumed that all
or any part of an inferred mineral resource will ever be upgraded
to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or other
economic studies. United
States investors are cautioned not to assume that all or any
part of measured or indicated mineral resources will ever be
converted into mineral reserves. United
States investors are also cautioned not to assume that all
or any part of an inferred mineral resource exists, or is
economically or legally mineable.
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